AI-linked chip players set to lead uneven semiconductor sector recovery

KUALA LUMPUR: Malaysia's semiconductor sector outlook remains positive, though uneven recovery is anticipated across subsectors, according to TA Securities. The firm identifies artificial intelligence (AI)-related investments, data centres, and advanced semiconductor applications as the primary growth areas. However, growth is expected to be driven by integrated circuit design, optoelectronics, and semiconductor packaging and testing, particularly for firms with AI and data centre infrastructure exposure.

Firms heavily invested in traditional markets like personal computers and smartphones might encounter a tougher operating environment due to increasing memory costs. Despite the recent US interest rate hike, which is expected to have limited direct effects on Malaysian semiconductor companies' earnings, tighter monetary conditions could negatively impact valuations, especially for stocks trading at high multiples.

Conversely, a stronger US dollar following the rate hike could offer some earnings support to export-oriented semiconductor companies with US dollar-denominated revenue. TA Securities anticipates the US rate hike to have a relatively minor impact on the local semiconductor sector. The global semiconductor industry remains in a supercycle, driven by sustained demand from AI and data centre expansion.

Global sales reached US$146.8 billion in July 2026, a 6.4% month-on-month increase and a 135.1% year-on-year growth. This marks the 33rd consecutive month of year-over-year growth, with cumulative sales for the first seven months of 2026 surging 93.6% to US$784.6 billion. TA Securities keeps a neutral stance on the semiconductor sector, recommending Dagang NeXchange Bhd as the top pick with a target price of 66 sen. Unisem M Bhd and Malaysian Pacific Industries Bhd are upgraded to Buy from Hold, with target prices of RM4.81 and RM47.30, respectively.

Inari Amertron Bhd remains on Hold with a target price of RM2.70. Elsoft Research Bhd's FY26 to FY28 earnings forecasts are revised downward by 27.1%, 10.4%, and 6%, respectively, due to lower sales of conventional automated test equipment. Its target price is reduced from 28 sen to 25 sen based on a 30 times calendar year 2027 price-to-earnings multiple, while maintaining a Hold call.