Power, water and connectivity are the new bottleneck in Malaysia’s artificial intelligence (AI) era, BIMB Securities said on Thursday.
The research house said in a report that power availability has become the key constraint to future expansion of data centers in Malaysia, surpassing land as the primary consideration.
It noted that Malaysia’s data center expansion is already having a meaningful impact on the national electricity system.
Malaysia’s utility firm Tenaga Nasional Berhad (TNB) was supplying electricity to 36 operational data centers with planned supply capacity of approximately 4.5GW as at the first quarter of 2026.
A further 23 projects under construction represented an additional 3.8GW of maximum demand capacity.
Furthermore, AI workloads are increasing rack density from traditional 5–10kW per rack towards 30-100kW+, accelerating power demand relative to floor space.
Consequently, future competitiveness will increasingly be determined by power availability rather than land availability.
BIMB sees the longer-term implications are even more significant as Malaysian government estimates that data centers could account for approximately 31 percent of Peninsular Malaysia’s total electricity consumption by 2035, equivalent to around 73,274GWh annually, compared with approximately 7 percent currently.
Over the same period, national peak electricity demand is projected to increase from 21.3GW in 2026 to 33.5GW by 2035, driven largely by growth in 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,” said the research house.
Thus, it sees national grid expansion has become a strategic priority. According to the research house, the scale of projected demand carries significant implications for Malaysia’s energy infrastructure.
Unlike traditional industrial developments, hyperscale data centers typically require substantial electricity capacity immediately upon commissioning.
A single hyperscale campus can consume hundreds of megawatts of electricity, comparable to the power requirements of a mid-sized city.
BIMB opined that meeting this demand will require substantial investments across the electricity value chain, including transmission network expansion; grid modernization; new substations; renewable-energy integration; system reliability enhancements.
To support these requirements, approximately MYR 43 billion ($10.63 billion) of grid-related capital expenditure has been approved under TNB’s Regulatory Period 4 (RP4) framework.
“Consequently, 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,” said the research house.
BIMB also sees green lane has strengthened Malaysia’s competitive position. Recognizing the importance of deployment speed, TNB introduced the Green Lane Pathway in 2023 to streamline grid connections for hyperscale and high-voltage customers.
The initiative reduced grid connection timelines from approximately 36-48 months to as little as 12 months through dedicated coordination and accelerated processing mechanisms.
By March 2026, TNB had successfully delivered 33 projects under the Green Lane framework. The program has become an important competitive advantage for Malaysia, particularly when attracting hyperscale operators that place a premium on execution certainty and deployment speed.
As global hyperscalers expand their presence in Malaysia, it said renewable energy is becoming an increasingly important component of investment decision-making
According to the report, large technology companies typically maintain ambitious carbon reduction commitments and seek access to renewable electricity wherever they operate.
“Consequently, Malaysia’s ability to support sustainable power procurement is becoming an important competitive differentiator,” said BIMB.
It added this creates opportunities across renewable generation, electricity storage and grid integration, particularly as data center operators seek to balance growing power requirements with environmental, social, and governance (ESG) objectives.
Meanwhile, water sustainability is also becoming increasingly important, with rising adoption of reclaimed water, closed-loop cooling systems and stricter efficiency requirements, said BIMB.
As AI workloads increase computing density and heat generation, cooling requirements are becoming increasingly important in data-center design and site selection, it added.
According to the research house, most hyperscale facilities continue to rely on water-based cooling systems to maintain operating temperatures and equipment reliability.
Consequently, access to reliable and sustainable water supply is becoming an increasingly important consideration alongside electricity availability, fiber 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,” said BIMB.
As a result, regulators and operators are increasingly prioritizing alternative water sources, water-efficiency technologies and infrastructure upgrades to reduce dependence on treated potable water.
BIMB highlighted that sustainable water solutions are gaining importance.
It noted Malaysia continues to expand water-treatment, storage and transmission infrastructure across key digital infrastructure corridors, particularly Johor, Selangor and Negeri Sembilan.
These investments are designed to preserve reserve margins while supporting future industrial growth, including rapidly expanding data-center demand.
“However, long term sustainability will increasingly depend on reducing reliance on potable water rather than simply expanding supply capacity,” it said.
Reclaimed water is also emerging as the preferred solution. BIMB believes reclaimed water is likely to become the industry’s preferred long-term cooling solution.
“Rather than relying exclusively on treated drinking water, reclaimed water allows treated wastewater to be further processed and supplied as industrial grade cooling water,” it noted.
It is noted that several Johor-based operators, including Bridge Data Centres, DayOne and Computility, have already adopted or committed to reclaimed water programs through partnerships involving Johor Special Water (JSW) and Indah Water Konsortium (IWK).
Beyond improving sustainability, reclaimed water reduces competition with residential and municipal consumption while improving approval visibility for future projects, said BIMB.
Water-efficient cooling technologies are also becoming standard. The research house sees technology is emerging as an important component of water sustainability.
It said many newer hyperscale facilities utilize closed-loop cooling systems that continuously recycle cooling water instead of relying on single-pass consumption. These systems significantly reduce freshwater demand while improving efficiency.
It is noted that global hyperscale operators such as AWS, Microsoft and Google are increasingly incorporating recycled water systems, intelligent 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,” said BIMB.
Connectivity also remains a critical pillar of the ecosystem. BIMB sees demand for fiber networks, cable landing stations and submarine cables is expected to increase alongside cloud and AI-driven data traffic growth.
According to the report, the growth of the digital economy has elevated connectivity alongside transportation and power as a critical national infrastructure network.
“Just as roads facilitate the movement of goods and power grids deliver electricity, fiber networks, submarine cables and data transmission infrastructure enable the movement of data across cities, countries and continents,” said BIMB.
As cloud computing, AI, digital payments and enterprise digitalization continue to expand, it sees connectivity is increasingly becoming a strategic economic asset rather than merely a telecommunications service.
The ability to move large volumes of data efficiently and reliably is emerging as a key determinant of a country’s attractiveness as a digital infrastructure destination, it added.
The research house sees data centers increase the value of connectivity assets. The rapid expansion of Malaysia’s data-center industry is creating a structural source of demand for high-capacity connectivity infrastructure.
“While electricity powers data centers, fiber and international connectivity determine how effectively those facilities can serve customers,” said BIMB.
It added that modern data centers continuously exchange data with cloud platforms, enterprises and users across multiple locations. This requires extensive fiber connectivity between facilities, campuses and international gateways.
“As data-center clusters expand across Johor and Klang Valley, demand for low latency, high-bandwidth connectivity is expected to increase in tandem with operational capacity growth,
“Consequently, the investment opportunity extends beyond data-center owners to operators of\ the underlying connectivity infrastructure supporting the ecosystem,” said BIMB.
According to the report, fiber networks remain the backbone of modern digital communications, serving households, enterprises, mobile networks and data centers.
Beyond supporting rising internet consumption, it noted fiber has become a critical enabler of cloud computing and AI adoption.
Every interaction with cloud-based applications ultimately depends on reliable fiber infrastructure to connect users with computing resources hosted within data centers.
“As AI workloads become increasingly data-intensive, demand for high-speed and low-latency connectivity is expected to grow at an accelerating pace, reinforcing the strategic importance of fiber owners and operators,” said BIMB.
Submarine cables are also the hidden backbone of the digital economy. While data centers often receive the greatest investor attention, BIMB sees submarine cables remain one of the most important yet underappreciated components of digital infrastructure.
It noted these systems carry more than 95 percent of international internet traffic and facilitate the movement of cloud data, enterprise communications, financial transactions and AI workloads between countries and regions.
“Every major hyperscale cloud platform ultimately relies on international cable networks to deliver services globally. As a result, ownership and control of submarine cable assets are becoming increasingly valuable as digital traffic volumes continue to expand,” it said.
The report also highlighted that for hyperscalers, financial institutions and enterprise customers, uninterrupted connectivity is a critical requirement.
This has increased the importance of cable diversity, whereby multiple international cable routes provide redundancy and minimize disruption risk.
Locations with greater cable diversity benefit from improved resilience, lower latency and enhanced business continuity, making them more attractive destinations for data-center investment, it noted.
It also said concerns over Malaysia’s cabotage policy have eased following exemptions that allow specialized foreign vessels to undertake submarine cable repairs.
“As a result, the issue is no longer considered a significant impediment to Malaysia’s digital infrastructure ambitions, although regulatory developments warrant ongoing attention,” it noted.
It also sees cable landing stations (CLS) serve as the gateways that connect international submarine cables with domestic fiber networks.
“Their role is comparable to ports and airports within the physical economy. Beyond facilitating international connectivity, cable landing stations improve network resilience, support route diversity and help reduce concentration risks within digital infrastructure networks,” BIMB said.
As data-center investments continue to concentrate in Johor and Klang Valley, it noted cable landing stations are becoming increasingly strategic due to their proximity to major digital infrastructure clusters.
BIMB sees Malaysia is well positioned within regional connectivity networks. According to the research house, Malaysia benefits from a favorable location along major international connectivity routes linking Asia, Europe and North America.
It is noted that the country is already connected to established systems such as SEA-ME-WE, AAG, APG and AAE-1, while newer projects including MIST, Asia Link Cable (ALC) and Candle continue to strengthen international connectivity capacity.
These investments enhance Malaysia’s position as a regional digital gateway and complement the country’s growing data-center ecosystem.
At the same time, hyperscale companies such as Google, Meta, Microsoft and Amazon are increasingly participating directly in submarine cable investments to secure bandwidth capacity for cloud and AI services.
“This trend is expected to accelerate as AI adoption drives exponential growth in global data traffic,” BIMB said.
The research house also sees digital infrastructure is creating powerful network effects. An increasingly important trend is the growing convergence between submarine cables, cable landing stations, fiber networks and data centers.
Additional cable landings improve international connectivity, attracting hyperscale operators
and cloud providers.
“The resulting increase in data-center development drives greater demand for domestic fiber infrastructure, creating a reinforcing cycle of digital infrastructure investment,
“This network effect is particularly evident in Johor, where proximity to Singapore, growing data-center capacity and expanding connectivity infrastructure are collectively strengthening the state’s position as a regional digital hub,” said BIMB
According to the report, Malaysia’s data-center industry is transitioning from a build-out phase to an operational delivery phase.
Between 2021 and 2025, growth was driven by land acquisitions, capacity announcements and facility construction.
From 2026 onwards, the focus is shifting towards energization, commissioning and utilization growth, making operational capacity a more important metric 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 monetization,” said BIMB.