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1/24/2025
Evolving Data Center Landscape in Asia-Pacific
The data center (DC) industry in APAC continues to demonstrate dynamic growth with no signs of a deceleration. Southeast Asia is at the forefront of this growth, receiving billions of investments from hyperscalers and colocation operators particular in Malaysia and Indonesia. In June 2024, Google Cloud announced a $2 billion investment to develop its first DC in Malaysia, followed by Oracle’s commitment of over $6.5 billion in AI and cloud computing infrastructure in October 2024.
This marks a significant shift of DC development landscape, as DCs have historically been established in developed markets with strong internet infrastructure (Table 1). Yet, these markets are becoming less attractive as AI workloads rise. In contrast to primary markets, the availability of affordable power and water makes secondary markets ideal candidates for DC development. The evolving DC landscape reflects changing DC requirements driven by AI computing, making these emerging markets increasingly appealing for
and DC operators.Before the generative AI boom, the proximity of DCs to demand and internet connectivity were crucial. Conventional DCs prioritized global connectivity over power supply, thriving in developed markets with solid internet infrastructure which are often also regional economic centers with massive demand from corporates. Power requirements were lower, and access to water was not a necessity since air cooling sufficed. However, the emergence of AI computing and the evolving business environment have seemed to make developing markets increasingly attractive for several reasons.
Figure 1: Statistics on APAC DC Markets
Source: Data center capacity: Cushman & Wakefield, as of February 2024. Population: United Nation Population Division, as of December 31, 2023.Electricity Cost and Median Download Speed: World Population Review, as of March 2024. Submarine Cable: TeleGeography, as of December 12, 2024.
On January 13, the U.S. issued a new policy consultation paper to restrict the export of advanced GPUs used in DCs, introducing uncertainties around Southeast Asian emergence as a DC powerhouse. The policy paper proposes a country and entity level export quota, exempting 19 key allies. While hyperscalers are generally exempted from the proposed quotas, local companies face a national limit of 50,000 GPUs. Entities meeting U.S. government security and human rights standards can purchase up to 320,000 advanced GPUs. As demand for computing power accelerates, we anticipate more AI DC with capacities of up to 100,000 GPUs. These export quotas could hinder the long-term development in emerging secondary markets, creating a more cloudy outlook. However, it is too early to assess the policy’s impact, as it is currently in a 120-day consultation period before implementation and its execution is dependent upon Trump administration.
The changing landscape has made emerging secondary markets increasingly attractive for AI data center (DC) development. However, DC development is likely to exhibit a strong clustering effect, with new facilities established near existing DC hubs to leverage the interconnectivity of primary markets. For instance, Batam in Indonesia and Malaysia are gaining popularity due to their proximity to Singapore. Kyushu is emerging as a new DC hub in Japan, complementing the Greater Tokyo and Osaka areas. Additionally, Perth and Queensland in Australia are developing as alternatives to Sydney for access to renewable energy.[6]
While these new markets thrive, established DC markets will likely remain active. Although higher-value AI training workloads may shift to data centers abroad due to their lower sensitivity to latency, lower-value services like cloud servers and tasks that require low latency, such as AI inference, will likely remain in primary markets because of their interconnectivity and proximity to demand. Consequently, both primary and secondary markets will coexist. However, current DCs in developed markets may face challenges in meeting the requirements for AI inference tasks, necessitating significant upgrades and creating new investment opportunities.
The demand for DCs with higher computing power presents an appealing investment opportunity. DC operators are direct beneficiaries. Power generation and utilities companies appear well positioned to benefit as substantial investments are needed to upgrade the power grid as DCs become increasingly energy intensive. Beyond these two obvious beneficiaries, further opportunities could exist upstream in the value chain, particularly among industrial firms that provide Power and Cooling solutions for data centers.
While the largest portion of DC costs is attributed to computing, networking and data storage, it is estimated that at least 40% of the total costs stem from power and cooling. Power management, encompassing power distribution, generators and uninterruptible power systems (UPS) account for the majority of this 40%. The surge in computing power and energy requirements necessitates more robust and efficient DC power solutions.
Efficient cooling is a crucial driver of a DC profitability, as a DC’s capacity is largely determined by its ability to cool servers effectively. As heat generation increases due to greater computing demands, investments in liquid cooling technologies are rising. Within this sector, cold plate liquid cooling, which dissipates heat through plates positioned atop heat generating chips, is projected to grow from 5% to 26% of the DC thermal management market by 2026 as more high-performance compute (HPC) infrastructure expands.[7]In addition, immersion cooling that submerges servers in dielectric fluid has gained lots of tractions due to energy efficiency. Nonetheless, immersion cooling face challenges related to high maintenance cost from IT equipment failures, liquid leakage and evaporation,[8] Investment into immersion cooling technology that minimizes maintenance appear promising. There are also potential opportunities in waste-heat application, such as residential heating, since releasing excess heat into the environment can be detrimental.
Finally, the prefabrication and modular (PFM) sector also may also stand to benefit from the growing demand of DC. Hyperscalers are increasingly deploying PFM solutions that allow portions of the construction process to occur offsite, addressing challenges such as labor shortages and volatile commodity prices in specific markets. PFM effectively shortens construction timelines reduces costs and enhances safety, quality and sustainability through controlled manufacturing environments. Specific opportunities within the PFM sector include structural and architectural components, as well as mechanical, electrical and plumbing (MEP) equipment and modules.
Figure 2: Simple Representation of a Data Center Physical Setup
Source: Public Comps, as of February 4, 2024