Malaysia to remain key site as consolidating all data centres in US "highly questionable"

KUALA LUMPUR: Malaysia will continue to be a key destination for data centres due to its ample power and water resources, cost efficiency and well-developed infrastructure. 

According to MIDF Research, the feasibility of consolidating all data centres in the US is highly questionable given the massive energy and cooling requirements.

The firm also noted that the emergence of DeepSeek - China's AI model said to match ChatGPT's performance with only 2,000 H-800 Nvidia chips which are far fewer than ChatGPT's estimated 11,000 H100 chips - could offset the effects of the AI chip ban.

"If DeepSeek's efficiency claims hold true, US firms would achieve the same processing power using far fewer graphics processing units (GPUs), meaning the 50,000 GPU limit would allow for multiple data centres in Malaysia or an expansion of current data centres.

"Beyond AI, data centres are not solely dependent on AI chips. The sector includes cloud-based and AI-based data centres, each serving different functions. Some are located onsite for easy access, while others serve as backups to ensure resilience against natural disasters," it said.

MIDF Research explained that strategic placement is crucial as geographically dispersed data centers improve latency, optimise bandwidth, and ensure uninterrupted service.

"For instance, if an undersea fibre-optic cable connecting a US YouTube DC fails, users may lose access - unless YouTube has a backup DC in Johor Bahru. These factors reinforce Malaysia's long-term attractiveness as a DC hub."

MIDF Research added that the recent fluctuations in Malaysia's construction sector, especially in stocks like Gamuda Bhd and Sunway Construction Bhd, stemmed from concerns over the AI chip restrictions imposed by the Biden administration. 

The policy limits US data centre operators from allocating more than 7 per cent of their processing power in Tier 2 countries like Malaysia and sets a cap of 50,000 GPUs per facility, raising concerns that large-scale data center investments in the country could decelerate.

"However, we believe that these fears may be overstated," it added.

MIDF Research remains optimistic about the construction sector, citing the continued decline in steel bar prices, which helps ease cost pressures, while stable cement prices create a favorable pricing environment for contractors.

The firm expects a rebound in construction stocks, driven by robust job flows, major infrastructure projects, and ongoing private sector investments in data centres, along with government-backed developments like the RTS Link in Johor and the Penang LRT.