Malaysia gains from a boom in data centers and chip work

In short: Malaysia is seeing faster economic growth as more companies build data centers and expand semiconductor work there.

What's going on

Malaysia is benefiting from rising demand for AI, especially the physical infrastructure behind it. Data centers (large buildings full of computers that store and process data, like a warehouse for the internet) are expanding quickly, and Malaysia also does a lot of important chip industry work.

Government data shows Malaysia’s economy grew 6% in the second quarter versus a year earlier. Manufacturing grew 7.5%, tied in part to chipmaking, and construction grew 6.6%, supported by data center building.

Malaysia has long focused on “back-end” semiconductor work, which includes packaging, assembling, and testing chips (the steps after the tiny circuits are made). The government says Malaysia holds about 13% of this global market, and semiconductors make up about 40% of the country’s exports.

A lot of the data center growth is concentrated in Johor, in southern Malaysia. Research firm Baxtel counts 76 of Malaysia’s 187 operational and planned data centers in Johor. Companies investing there include TikTok, Nvidia, and Microsoft, including projects built on former palm oil plantations.

What to watch

Rapid data center growth has also brought local concerns about energy and water use, including protests. Another risk is geopolitics, Malaysia has faced accusations that restricted US chips are being routed through the country to China. Malaysia has tightened rules and monitoring, but analysts warn the country could face pressure if smuggling continues.

Source: Financial Times