The research house said the rising uncertainties in the tech sector will keep volatility high and “suppress investors’ risk appetite”.

These uncertainties have contributed to a substantial decline in the prices of many technology stocks on Bursa Malaysia since the start of the year.

The bourse’s technology index has fallen about 8% year to date after the US tightened restrictions on advanced AI chips and the launch of DeepSeek, with its lower-cost AI models.

In a note, Kenanga pointed to the company’s emergence, escalating US-China trade tensions, and potential US policy reviews as risks hanging over the tech sector.

It added that DeepSeek’s emergence challenges US semiconductor export controls, as China continues advancing AI despite restrictions, potentially triggering US policymakers to reassess policies and tariffs, heightening supply chain concerns.

It has also introduced uncertainties into the semiconductor sector, particularly regarding Nvidia’s dominance, US chip restrictions, and AI investment strategies despite big tech’s high capex commitment, Kenanga said.

It said while the ongoing semiconductor upcycle – now in its 13th month – is expected to continue, growth could slow as industry players reassess their business models.

It noted that the recent selldown in technology stocks was largely driven by investors moderating their expectations, rather than earnings weakness, pointing to minimal forward earnings revisions.

It also reassessed valuations of semiconductor stocks under its coverage, lowering the earnings multiples to reflect the sector’s rising risk profile and evolving market dynamics.

Kenanga highlighted Inari Amertron Bhd, PIE Industrial Bhd, and Kelington Group Bhd (KGB) as its preferred picks, citing their strong earnings visibility and strategic positioning in the ongoing AI-driven growth trend.

It has a 52-week target price of RM3.27 for Inari, RM6.28 for PIE and RM6.16 for KGB. Inari surged 11.9% today to RM2.72 while PIE and KGB closed at RM4.86 and RM3.44 respectively.