Malaysia’s data centres poised to lead in AI Innovation amid growing global demand

FOLLOWING NVIDIA, the likes of Google, Amazon Web Services, Microsoft and Oracle have in a period of 12 months announced heavy investments in Malaysia.

“These also involved making Malaysia an availability region, which in layman terms, contain discrete Data Centres (DCs), of which local startups, businesses can be served out,” said Kenanga Research (Kenanga) in the recent Market Strategy Report.

Cumulatively, commitment by these hyperscalers amounted to USD21.2 bil.

According to the latest Knight Frank’s data centre report 2024, these hyperscaler investments were sufficient to crown Malaysia once again atop the DC spending in this region for 2024.

Global big techs are thinking of rushing to stay ahead of the competition. This is despite the fact that over at Wall Street, investors following big tech developments will note that there are discussions on a bigger picture about returns on gen AI payback.

Global big tech firms are in sync in looking to ramp up capital expenditure (capex) ahead as seen in their intentions in exhibit 1 below, after experiencing a jump in capex this year.

“In the near term, we think this is still a positive signal for capex play, and likely to benefit the likes of visibility for Malaysia DC build-out/fit-out,” said Kenanga.

The mix of DC workload to cater to AI will outstrip the growth that comes from just enterprises moving onto cloud. For Malaysia, there is no slowdown in the race to build out data centres that are suited for AI.

For instance, Byte Dance has stated its intention to make Malaysia as an AI hub, with additional investment potential of RM10 bil, while also bringing in supply chain investment to the tune of another RM1 bil.

Existing DC players such as Keppel have also in recent earnings calls said that it is looking to build AI campuses, of which one of the locations will be in Malaysia, aside from India, Japan and Indonesia. Being a destination for AI DC is also in line with the government’s plans.

“Google officially unveiled its first data centre and Google Cloud region in Malaysia in October, which we believe can help spur cloud adoption,” said Kenanga.

While Malaysia doesn’t have rules necessitating data to be stored locally, there are restrictions for data to be stored outside the country, unless exceptions are met.

Within the region, this seems par for the course; Singapore and Thailand likewise do not have requirements for data to be kept in-country, but require necessary protection for data crossing borders, while Indonesia requires public sector data to be on local shores, and that for Vietnam stored for a period of time.

This could also be driving data centres being set up within each country, particularly in the AI era where lower latency and less delay is crucial. For example, Google had previously said that the cloud region could expedite the benefits reaped by local enterprises from on-demand compute, AI and machine learning.

As a data centre hub, Malaysia has enjoyed a head start, having approved RM114.7 bil in investments related to data centres between 2021 and 2023, according to Plan Malaysia.

This AI use can be broadly categorised into training (where a model receives large amounts of data to learn patterns) and inferencing (making predictions when presented with new data); the latter tends to be more sensitive to latency.

Over in Thailand, in quick succession, Microsoft followed the lead of Oracle and Amazon Web Services looking to invest in that country.

The Thai Board of Investment had also revealed 38 data centre and cloud service projects with an investment value of 98.5 bil baht (equivalent to USD3 bil).

In addition, there was also approval for a direct power purchase pilot project (not exceeding 2GW), as legislation on wheeling charges are also now being looked into.

Separately, over in Vietnam, Nvidia signed an agreement early this month to establish an AI research and development centre in the country, with Viettel, the largest telecom operator in Vietnam.

This was after it lifted foreign ownership restrictions on data centre investors in July.

All said, at the moment, it appears clear to Kenanga that the existing allocation of resources by big tech is still mainly concentrated in Malaysia in terms of value. —Dec 27, 2024