DC outlook intact for now

PETALING JAYA: There is a possibility that the firms involved in the alleged breach involving Nvidia-powered artificial intelligence (AI) chips may face US sanctions, but such measures are unlikely to be applied to Malaysia, says Sunway University economics professor Dr Yeah Kim Leng.

Yeah said this is given that many existing data centres (DCs) and those in the pipeline are US-based companies.

“Nvidia, a US company, is seeking new markets to offset its loss of China’s market as the Chinese government has banned the use of its chips.

“China is accelerating development of home-grown AI chips, thereby offering an alternative supply unless companies that use them are also sanctioned by the United States,” he told StarBiz.

Yeah opined that despite the uncertainties caused by the technological rivalry between China and the United States, the outlook for DCs in Malaysia remained positive given the rising local and global demand for cloud and AI services.

“Malaysia will also benefit from the global firms’ diversification of DCs that leveraged on each country’s growth opportunities and cost advantages such as availability of cheap energy, land and skilled manpower resources,” he said.

According to a Wall Street Journal article, Chinese engineers reportedly flew to Malaysia in March with suitcases full of hard drives containing around 80 terabytes of data to train AI models at local DCs equipped with advanced Nvidia chips.

In addressing the alleged breach, the Investment, Trade and Industry Ministry (Miti) said, in a statement on Wednesday, it is in the process of verifying the matter with relevant agencies.

It reiterated that servers using Nvidia chips and AI chips are not classified as controlled goods under the Malaysian Strategic Trade Act 2010.

“Malaysia will cooperate with any government that requires assistance in monitoring trade in sensitive goods under the export control of their respective countries,” it said.

Given that the allegations were made in March, MIDF Research said it could be a move to “speed up the process”, before the eventually rescinded AI Diffusion Framework that was expected to come into force on May 15.

The research house is of the view that the pipeline of DC jobs in Malaysia is unlikely to be impacted by the alleged breach. It noted there is no slowdown or delay in ongoing projects and contractors are actively bidding for new DC construction jobs.

“Just last month, Gamuda Bhd sold 389 acres of land in Port Dickson to Google-linked Pearl Computing Malaysia Sdn Bhd and signed a RM1.01bil external infrastructure contract for enabling works for DC development, while Sunway Construction Group Bhd secured a RM1.16bil contract from a US tech giant to build two DCs,” MIDF Research said in a report yesterday.

Microsoft recently reaffirmed its commitment to a RM10.5bil investment in cloud and AI infrastructure in Malaysia, including the development of hyperscale DCs in the Klang Valley.

“We also reiterate that not all DCs are AI DCs and while most of them are AI-ready, they may eventually be utilised for non-AI purposes,” MIDF Research said.

It cited the example of YTL Power International Bhd which previously allocated 100MW for AI from its 500MW DC in Kulai, Johor.

iFAST Capital research analyst Kevin Khaw Khai Sheng said the long-term prospects of the country’s DC sector remains “quite intact”.

“Ultimately, Malaysia continues to benefit from several competitive advantages –such as abundant water resources for cooling, land, skilled labour and a relatively weak ringgit, which makes the country cost-effective,” he said.

Khaw added that, due to Singapore’s limited access to such resources, he expected closer collaboration between Malaysia and the city-state.

Asked if the alleged breach would affect ongoing tariff negotiations between Malaysia and the United States, Khaw said it would unlikely be a decisive factor given that the country is already negotiating from a weaker footing.

“The alleged breach may add a bit more pressure to our position in negotiations. But ultimately, it depends on how our government handles the situation and works toward securing the best possible outcome.

“From the United States’ perspective, Malaysia is not their major competitor. It is actively trying to diversify its supply chain risks – especially in light of tensions with China – and is looking for more allies and partnerships with other countries. Given Malaysia’s ‘neutral’ stance and our geographical advantages, we could still be seen as a potential partner for the United States,” he said.

Khaw said the construction sector’s outlook remained optimistic with the order book environment set to improve heading into the second half of 2025.