Power, water and connectivity are emerging as the key bottlenecks to Malaysia’s artificial intelligence (AI) and data-center expansion, with electricity availability increasingly overtaking land as the main constraint, BIMB Securities said on Thursday.
In a report, the research house said Malaysia’s data-center growth was already having a significant impact on the national electricity system.
Tenaga Nasional Bhd (TNB) was supplying electricity to 36 operational data centers with planned supply capacity of about 4.5GW as at the first quarter of 2026. Another 23 projects under construction represented an additional 3.8GW of maximum demand capacity.
The rise of AI workloads is adding to power requirements, with rack densities increasing from traditional 5-10kW towards 30-100kW or more. This means electricity demand is rising faster relative to the physical footprint of data centers.
BIMB said the longer-term implications were significant, with government estimates that data centers could account for about 31% of Peninsular Malaysia’s total electricity consumption by 2035, equivalent to around 73,274GWh annually, compared with about 7% currently.
National peak electricity demand is projected to rise from 21.3GW in 2026 to 33.5GW by 2035, driven largely by data centers and other high-technology industries.
“This represents a structural shift in Malaysia’s electricity-demand profile and underscores the increasingly strategic role of power infrastructure within the digital economy,” BIMB said.
It said grid expansion had therefore become a strategic priority. Hyperscale data centers typically require substantial electricity capacity upon commissioning, with a single campus potentially consuming hundreds of megawatts.
Meeting the projected demand will require investment across the electricity value chain, including transmission expansion, grid modernization, new substations, renewable-energy integration and system reliability.
About MYR 43 billion ($10.57 billion) of grid-related capital expenditure has been approved under TNB’s Regulatory Period 4 framework.
“The key challenge is no longer whether Malaysia can attract data-center investments, but whether power infrastructure can be deployed quickly enough to support demand growth while maintaining system stability and reserve margins,” BIMB said.
Green lane strengthens power advantage
BIMB said TNB’s Green Lane Pathway, introduced in 2023, had strengthened Malaysia’s ability to provide faster grid connections to hyperscale and high-voltage customers.
The initiative reduced connection timelines from about 36-48 months to as little as 12 months through dedicated coordination and accelerated processing. By March 2026, TNB had delivered 33 projects under the framework.
The research house said the program could remain an advantage in attracting hyperscale operators that prioritize deployment speed and certainty.
At the same time, renewable energy is becoming more important in investment decisions as global technology companies seek to meet carbon-reduction commitments.
“Malaysia’s ability to support sustainable power procurement is becoming an important competitive differentiator,” BIMB said.
This could create opportunities in renewable generation, electricity storage and grid integration as data-centre operators seek to accommodate rising power consumption while meeting environmental, social and governance objectives.
Water becomes critical for cooling
Water sustainability is also becoming increasingly important as AI workloads increase computing density and heat generation, BIMB said.
Most hyperscale facilities continue to rely on water-based cooling systems, making access to reliable and sustainable water supplies an increasingly important consideration alongside electricity, fibre connectivity and land.
“The industry’s challenge is not simply securing sufficient water today, but ensuring long-term resource sustainability as data-center capacity continues to expand,” it said.
Regulators and operators are consequently looking at alternative water sources, water-efficiency technologies and infrastructure upgrades to reduce dependence on treated potable water.
Malaysia is expanding water-treatment, storage and transmission infrastructure across key digital infrastructure corridors, particularly Johor, Selangor and Negeri Sembilan.
However, BIMB said long-term sustainability would increasingly depend on reducing reliance on potable water rather than simply increasing supply capacity.
Reclaimed water is emerging as a potential long-term cooling solution, allowing treated wastewater to be further processed and supplied as industrial-grade cooling water.
Several Johor-based operators, including Bridge Data Centres, DayOne and Computility, have adopted or committed to reclaimed-water programmes through partnerships involving Johor Special Water and Indah Water Konsortium.
BIMB said reclaimed water could reduce competition with residential and municipal consumption while providing greater visibility for future project approvals.
Water-efficient technologies are also gaining importance. Newer hyperscale facilities are increasingly using closed-loop cooling systems that recycle cooling water, reducing freshwater consumption.
Global hyperscalers including AWS, Microsoft and Google are also incorporating recycled-water systems, monitoring platforms and water-efficiency targets into facility design.
“As a result, future competitiveness may be determined not only by water availability, but also by water-use efficiency,” BIMB said.
Connectivity underpins data-centre growth
Connectivity is another critical pillar of Malaysia’s digital infrastructure ecosystem, with demand for fibre networks, cable landing stations and submarine cables expected to rise alongside cloud and AI-driven data traffic.
BIMB said connectivity had become a strategic economic asset as cloud computing, AI, digital payments and enterprise digitalisation expand.
“While electricity powers data centres, fibre and international connectivity determine how effectively those facilities can serve customers,” it said.
Modern data centers continuously exchange data with cloud platforms, enterprises and users across multiple locations, requiring extensive fibre connections between facilities, campuses and international gateways.
As data-center clusters expand in Johor and the Klang Valley, demand for low-latency, high-bandwidth connectivity is expected to increase.
The investment opportunity therefore extends beyond data-centre owners to operators of the underlying connectivity infrastructure, BIMB said.
Fiber remains the backbone of digital communications, connecting households, enterprises, mobile networks and data centres. As AI workloads become more data-intensive, demand for faster and lower-latency connectivity is expected to increase.
Submarine cables gain strategic importance
Submarine cables remain an important but often underappreciated component of digital infrastructure, carrying more than 95 percent of international internet traffic and supporting cloud services, enterprise communications, financial transactions and AI workloads between countries.
BIMB said major hyperscale cloud platforms ultimately depended on international cable networks to deliver services globally, making cable ownership, capacity and route diversity increasingly important.
For hyperscalers, financial institutions and enterprises, uninterrupted connectivity is critical. Multiple international cable routes provide redundancy and reduce disruption risks, while locations with greater cable diversity can offer better resilience, lower latency and improved business continuity.
BIMB said concerns over Malaysia’s cabotage policy had eased following exemptions allowing specialised foreign vessels to conduct submarine cable repairs. The issue was therefore no longer considered a major impediment to Malaysia’s digital infrastructure ambitions, although regulatory developments would continue to warrant monitoring.
Cable landing stations act as gateways between international submarine cables and domestic fibre networks. Their strategic importance is increasing as data-centre investments concentrate in Johor and the Klang Valley.
Malaysia is well positioned along major international connectivity routes linking Asia, Europe and North America. Existing systems include SEA-ME-WE, AAG, APG and AAE-1, while newer projects such as MIST, Asia Link Cable and Candle are adding capacity.
Hyperscalers including Google, Meta, Microsoft and Amazon are also increasingly participating directly in submarine cable investments to secure bandwidth for cloud and AI services.
BIMB said the convergence of submarine cables, cable landing stations, fibre networks and data centres was creating network effects. Additional cable landings improve international connectivity, which can attract hyperscalers and cloud providers, while new data centres generate further demand for domestic fibre infrastructure.
“This network effect is particularly evident in Johor, where proximity to Singapore, growing data-centre capacity and expanding connectivity infrastructure are collectively strengthening the state’s position as a regional digital hub,” it said.
Focus shifts to operational capacity
BIMB said Malaysia’s data-centre industry was transitioning from a build-out phase towards operational delivery.
From 2021 to 2025, growth was driven largely by land acquisitions, capacity announcements and facility construction. From 2026 onwards, the focus is shifting towards energisation, commissioning and utilisation, making operational capacity a more meaningful measure than announced capacity.
“As the industry matures, we believe investment opportunities are increasingly shifting from construction-led beneficiaries towards owners of recurring-revenue infrastructure, particularly utilities, renewable energy providers and connectivity operators, while selected contractors and developers continue to benefit from ongoing project execution and land monetisation,” BIMB said.