No bubble, doom, or trouble for Malaysia’s data centers

For over the past year, questions have persisted about Malaysia’s data center boom. Is it sustainable? Will hyperscalers pull their chips? Is it in a bubble?

Malaysia’s data center surge remains one of the largest in the world, but the physical and geopolitical limits surrounding it are no longer theoretical. Higher electricity tariffs, uncertainty around long-term energy pricing, constraints with water resources, and new US semiconductor rules are reshaping the calculus for developers and government planners.

Photo credit: Tang Yan Song / Shutterstock

The concerns, however, aren’t exclusive to Malaysia. Data centers are also on the rise in Indonesia and Vietnam.

Many analysts are worried, but others say there is no bubble and these countries are making a necessary investment.

A boom built on Singapore’s pause

Malaysia’s rise began with Singapore’s “temporary pause” on new data centers between 2019 and 2022 due to environmental and resource-related issues. The moratorium pushed global cloud providers to look for alternatives just across the border.

Johor, the Malaysian state north of Singapore, offers large plots of land suitable for data centers, proximity to its neighbor’s high-speed internet infrastructure, and lower costs. Investment commitments have made Johor the hot spot for data center construction in Southeast Asia.

But even as construction accelerated, there were early warning signs.

Malaysia’s utilities sector began flagging challenges, and a recent report from Reuters cited increasing electricity tariffs and unclear long-term pricing for operators.

See also: Malaysia’s thirst for AI data centers could leave it high and dry

A more detailed warning came from a study by the ISEAS-Yusof Ishak Institute. Researcher Sara Loo found that Malaysia’s committed data center capacity, which is based on signed electricity supply agreements, was expanding significantly.

According to a July 2025 note, the country has 43 data center projects in the pipeline with a combined maximum demand of 6.4 gigawatts, or around 23% of peninsular Malaysia’s total capacity.

The interior of a data center in Malaysia, a facility that houses computer systems and associated components / Photo credit: Allora Empire Art / Shutterstock

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