As Malaysia ushers in 2025 with a keen focus on artificial intelligence (AI), global big tech firms are still very much in the generative-AI rush, racing to get ahead of competition.
On that note, Kenanga IB pointed to its big tech's still-bullish guidance on 2025 capex, especially in chips/server and data centres (DC), which in turn, is giving confidence that Malaysia is set for a strong 2025 growth in DC build-out/fit-out plays, cloud adoption, as well AI-related themes, including GPU-as-a-service.
The house said that while Malaysia has been and continues to be the beneficiary of high DC demand, thanks to Singapore's spillover, competition in the region intensifies as big tech spreads out investments, namely Thailand. Locally, new regulations require DC roll-outs to be more attentive to local resource needs, and these are not seen to be restrictive towards getting
new business. Contractors are nevertheless looking at innovative delivery approaches to secure DC work.
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 them making Malaysia an availability region/zone, which in layman terms, contain discrete DCs, of which local startups, businesses can be served out. Cumulatively, commitment by these hyperscalers amount to USD21.2b, and 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 rushing to stay ahead of competition. This is despite the fact that over at Wall Street, investors
following bigtech developments will note that there are discussions on a bigger picture about returns on gen AI payback
(including Microsoft, who says it takes more than a decade). Global big tech firms are in sync in looking to ramp up 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.
Malaysia has found a niche as an AI-DC destination. 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 RM10b, while also bringing in supply chain investment to the tune of another RM1b. Existing DC players such as
Keppel has also in recent earnings call 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.
In a blue-sky roll-out (or optimistic scenario) where more bullish assumptions are delivered, the names where Kenanga IB see most upside from its current fair valuations include $YTLPOWR (6742.MY)$ (OP; TP: RM5.00), $PIE (7095.MY)$ (OP; TP: RM6.85), $MAHSING (8583.MY)$ (OP; TP: RM2.32), $SUNCON (5263.MY)$ (MP; TP: RM4.71), and $ENGTEX (5056.MY)$ (OP; TP:RM0.81) for small caps.
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