Malaysia’s semiconductor sector rally has broadened beyond artificial intelligence, lifting the wider supply chain and reinforcing expectations of more durable earnings growth. Analysts say, however, that the upcycle still has room to run despite a strong first half performance.

Hong Leong Investment Bank said early signs identified in April, particularly in analog semiconductors, led it to upgrade the sector to overweight at the time, The Edge Malaysia reports. It noted that the Bursa Malaysia Technology Index has already risen 34% in the first half of 2026, but argued that both the breadth and duration of the current earnings cycle still have further upside.

Kenanga Research maintained a neutral stance on the sector due to near-term valuation risks, but raised its valuation assumptions to reflect stronger earnings durability and longer growth visibility.

Both houses pointed to front-end wafer fabrication equipment companies and dominant outsourced semiconductor assembly and test (OSAT) players as key beneficiaries of the current cycle.

Kenanga highlighted Kelington Group Bhd, Frontken Corp Bhd and UWC Bhd as its preferred picks. Hong Leong Investment Bank named UWC Bhd, Inari Amertron Bhd and Unisem (M) Bhd among its top hardware exposures.

The World Semiconductor Trade Statistics (WSTS) has significantly upgraded its global outlook, forecasting semiconductor sales to jump 90% year on year to $1.51 trillion in 2026, before expanding a further 27% to around $1.9 trillion in 2027.

WSTS expects the 2026 surge to be driven mainly by memory chips, which are forecast to rise about 250% to more than $800bn, supported by strong demand for high-bandwidth memory. Logic chip sales are expected to grow 37%.

Kenanga said the current cycle is being driven by capital-intensive investment in artificial intelligence infrastructure. Growth, it added, is increasingly being shaped by higher semiconductor content per device and rising average selling prices in AI systems rather than unit volume growth.

Hong Leong Investment Bank said the analog semiconductor cycle now appears to be turning upward, adding an additional earnings driver alongside existing structural trends. It also pointed to renewed price increases by global players such as Texas Instruments and Infineon as evidence of tightening backend capacity.

Malaysian OSAT players are scaling up capacity to capture demand. Unisem is expected to see customer volumes at its Gopeng facility ramp up materially from the second quarter of 2026, supporting a return to breakeven for Malaysian operations. The group is also planning Gopeng Phase 2, which will include advanced wafer bumping capacity.