The overhang on the data center theme in Malaysia has eased for now, after the United States scrapped its artificial AI diffusion rules that were proposed during the wane of the Biden Administration, RHB Investment Bank said Monday.
The research house said in a note that the proposed data center builds in Malaysia will no longer be subject to graphics processing unit (GPU) cap restrictions, which would have stifled data center related investments.
Media reports indicate that the US Department of Commerce will issue a replacement rule – based on a bilateral negotiation model – to determine access to advanced GPUs.
RHB opined that this policy change will alleviate concerns impacting the entire data center value chain including construction, property, energy, telecommunications and technology.
The research house expects a revival of investor interest in the data center theme keeping hotspots in Johor and Cyberjaya on the boil.
“While a country-by-country bilateral negotiation process will take time, it will offer an opportunity for affected countries to commit to new assurances to curb the diversion of AI chips to China,” it said.
It noted that this process is preferable to a unilateral policy change that does not offer the affected countries the opportunity for due process.
“Greater policy clarity would be a positive for the tech sector,
“Overall, the policy shift will benefit countries previously categorized under Tier-2 (including Malaysia) but would not have a material impact on Tier-3 countries – most of which were already prohibited from accessing US technology under existing chip export rules,” it added.
On construction sector, RHB said the trends of data center investments likely remaining intact in Malaysia following this latest development could sustain job replenishment trends in the next few years for contractors, translating into commendable earnings visibility.
For instance, Johor’s planned data center capacity of 822 megawatts (MW) may entail around MYR 16 billion ($3.71 billion) worth of potential job opportunities for contractors.
As for property sector, the research house sees policy shift will ease investors’ concern over the potential delay in or cancellation of the major data center projects signed with the landowners, developers, and contractors in Malaysia.
Ongoing negotiations with data center players for upcoming deals will be smoother, although landowners will be more vigilant on potential regulatory risks, it added.
On utilities sector, RHB said the burgeoning data center pipeline will support long-term demand for electricity and water infrastructure.
It noted the total capacity related to electricity supply agreement (ESA) signed projects expanded to 5.9 gigawatts (GW) in the fourth quarter of 2024 from 4.7 GW in the third quarter of 2024, anchoring demand for higher renewable energy (RE) targets.
As for technology sector, RHB believes the overhang on the GPU and central processing unit (CPU) supply chains would be partially lifted, if not completely so.
Broadly, it believes the latest developments in AI-related chip exports should continue to be a major growth driver of the current upcycle in the chip industry.
According to the research house, the entire semiconductor supply chain – from design houses and outsourced semiconductor assembly and test (OSAT) companies, to automated test equipment or automated test equipment (ATE) makers, engineering support players, and electronics manufacturing services (EMS) firms should continue to benefit from the upcycle and broader sector recovery in 2025-2026.
“All in, we remain optimistic on a stronger 2025, fueled by firmer broad-based demand and the replacement cycle,” it said.
It is noted that the “Magnificent Seven” of tech —Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms, Tesla, and Nvidia – are estimated to collectively invest over $400 billion in capital expenditure (capex) in 2025 and it is expected to continue growing into 2026.
Despite the announcement of the AI diffusion rule earlier, RHB’s data compilation shows that there has been no meaningful cut in planned capex by these tech giants.
“This is phenomenon that we take comfort in when assessing the entire AI/data center story,
“The only exception or the only negative development is from Microsoft, which reportedly cancelled data center leases totaling a several hundred MWs, and scaled back on international investments,” it said.
In a nutshell, the significant uptick in capex by the tech giants highlights their commitment to leading the next wave of technological innovation, particularly in AI, and this should continue to have a positive spillover effect on countries like Malaysia, it added.
As for telecommunications sector, the research house highlighted that the reversal of the US’ AI diffusion proposals should assuage concerns that access to AI chips and servers would be severely inhibited with a convoluted validation process potentially put in place.
As for telecommunication sector, it said the reversal of the US’ AI diffusion proposals should assuage concerns that access to AI chips and servers would be severely inhibited with a convoluted validation process potentially put in place.
As telecommunication companies are at the forefront of AI adoption with the ownership of infrastructure data center assets and related connectivity offerings, it noted a recalibrated inclusive approach taking into the account the multitude of investments by US-based hyper scalers in Malaysia would go a long way in sustaining the data center theme.
“While the US plans to carve out a new rule in the near future, we believe bilateral negotiations will take precedence in the interim, with access to US AI chips potentially used as leverage in on-going tariff talks,” it added.
Indeed, its discussions with the telcos indicate a relatively small exposure to high-end GPUs (that are subject to export controls).
Meanwhile, it noted GPU-as-a service (GPUaas) has also emerged as a cost-effective solution, with customers having to avert potentially prohibitive investments especially where regulatory scrutiny is high.
Overall, RHB believes the data center story still has legs, with consistent positive investment news flow seen through the past months despite the US AI diffusion overhang.
It added that the favorable environment in Malaysia for data centers remains, pending further details on the bilateral negotiation process.
While the trade war de-escalation has reduced market risk premiums, the research house cannot rule out more Trump-induced volatility further out.