Rising geopolitical tensions and energy market volatility are beginning to reshape global data center (DC) investment patterns, with Southeast Asia including Malaysia emerging as a key beneficiary of a potential shift away from higher-risk regions, RHB Investment Bank said Tuesday.

Despite escalating conflict in the Middle East and tightening global supply chains, investment appetite in Malaysia’s DC sector remains robust, supported by sustained demand from hyperscalers and colocation (colo) providers, the research house said in a report.

On-the-ground checks and industry engagements indicate that planned investments have largely remained intact, underpinned by strong structural demand from artificial intelligence (AI) workloads. The rapid expansion of AI training and high-density computing infrastructure has offset concerns over rising costs and supply disruptions.

“Strong demand for AI-related workloads remains the key structural tailwind, mitigating concerns over supply chain uncertainties and potentially higher build-out costs,” the research house said.

Geopolitics drives portfolio diversification

The report highlighted that increasing concerns over infrastructure security — particularly following recent attacks on DC assets in the Middle East — could accelerate a rebalancing of global DC portfolios.

In March, Iranian drone strikes hit facilities operated by Amazon in the United Arab Emirates and Bahrain, causing structural damage and service disruptions across the Gulf. A separate attack in April targeted a facility linked to Oracle in Dubai.

The incidents disrupted digital services including financial transactions and social media, raising broader concerns about business continuity in conflict-prone regions.

Against this backdrop, investors may increasingly look towards Southeast Asia as part of a geopolitical diversification strategy.

“We believe heightened concerns over the security risks of data center infrastructure and supply chain challenges may potentially see the rebalancing of DC portfolios from the Middle East to South-East Asia,” RHB said.

Malaysia, in particular, stands out as a natural alternative due to its cost competitiveness, political stability and strengthening policy framework.

Johor leads capacity surge

The country’s DC boom is most visible in Johor, which has rapidly evolved into a regional hub.

According to industry data from DC Byte, Johor has attracted more than 4GW of capacity, including committed and early-stage investments, with inventory expanding at a compound annual growth rate of 260 percent between 2019 and 2024.

Growth is also accelerating in Cyberjaya, with a sharp increase in floor space dedicated to AI-driven workloads. Significant new colo capacity is expected to come online in 2026.

Industry projections reinforce the sector’s strong outlook. The Asia Pacific Data Center Association expects Malaysia’s total capacity to nearly double to 2.53GW by 2030 from 1.26GW in 2025, implying a 15 percent annual growth rate. Colocation revenue is forecast to grow even faster, reaching $1.87 billion with a five-year compound annual growth rate (CAGR) of 21 percent.

Meanwhile, Mordor Intelligence estimates the Malaysian DC market will expand from $6.55 billion in 2026 to $16.02 billion by 2031, representing a CAGR of 19.5 percent.

Hyperscalers deepen presence

Indeed, global technology giants are already positioning themselves to capitalize on Malaysia’s growth trajectory.

Microsoft launched its first Azure cloud region in Malaysia in May 2025, while a second region focused on AI-intensive workloads is being developed in Johor.

Amazon Web Services has established a local cloud region, and Google is building its first Malaysian cloud region in Selangor.

These investments reinforce Malaysia’s emergence as a strategic node in global cloud infrastructure, particularly as demand for AI computing accelerates.

Costs remain competitive

While the global energy crisis has raised concerns about operating costs, Malaysia continues to maintain a competitive edge.

Electricity tariffs remain among the lowest in the region, supported by a regulated pricing structure. Even under a scenario of elevated coal prices, data center operators are expected to incur an average tariff of about $0.17 per kWh — still below prevailing rates in markets such as Singapore and the Philippines.

Construction costs also remain manageable. Based on an estimated MYR 6.9 million ($1.75 million) per MW and a projected pipeline exceeding 3GW, the sector could generate up to MYR 90 billion ($22.79 billion) in construction value by 2030, offering a significant boost to local contractors.

The use of cost-plus pricing models further helps operators pass through higher costs, cushioning margin pressures.

Supply chain strains persist but manageable

It is noted that supply chain disruptions — exacerbated by geopolitical tensions and shipping constraints such as those linked to the Strait of Hormuz — have lengthened lead times for critical components including graphics processing units (GPUs), AI accelerators and high-bandwidth memory.

However, mitigation strategies are already in place. Semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company, SK Hynix and Intel have adopted closed-loop helium recycling systems to reduce reliance on constrained inputs and avoid production disruptions.

Meanwhile, improvements in power usage efficiency and the growing adoption of renewable energy are expected to further offset cost pressures over time, said RHB.

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