As the global tech industry continues its aggressive expansion, equity investors are turning their sights to Southeast Asia, identifying it as a prime region to capitalize on the burgeoning artificial intelligence (AI) market. This shift is largely fueled by major tech companies committing billions to infrastructure development over the next few years.
Traditionally, Southeast Asia was overlooked by technology investors due to its minimal tech exposure. However, the region is now emerging as a key player in the AI domain, thanks to its cost-effective production capabilities and strategic position in the global semiconductor value chain. This change is reflected in the increasing establishment of data centers across the region, drawn by the lower costs of energy and land.
According to industry experts, the sectors poised to benefit the most include power production, information technology services, telecommunications, and semiconductors. Utility companies, in particular, are receiving heightened attention. “Utility companies and those that supply the electrification and the grids are a lot more interesting for us,” says Kenneth Tang, a portfolio manager at Nikko Asset Management. These firms are crucial as they provide the infrastructure essential for the large-scale operation of data centers.
Morgan Stanley projects that by 2027, Southeast Asia will become the world’s second-largest non-US data center provider, trailing only behind China. This prediction underscores the region’s potential to initiate a multi-year growth cycle for companies within the AI supply chain.
Several Southeast Asian firms are strategically positioned to capitalize on the AI expansion. Below is an overview of some notable companies making significant strides:
- YTL Power International Bhd (KL): Shares in this Malaysian utility firm have doubled following its agreement with Nvidia Corp to construct a US$4.3 billion AI data center in Johor. Unique in Malaysia, YTL Power is set to operate the only new data center with a 500MW solar power supply, making it an attractive choice for customers prioritizing clean energy.
- Tenaga Nasional Bhd (KL): As Malaysia’s sole grid operator, TNB is poised to be the largest beneficiary of the ASEAN data center growth, with analysts at Morgan Stanley predicting a doubling of profits within three years. The expected surge in electricity demand from data centers, which may exceed 4,300MW by 2035, coupled with TNB’s shift towards renewable energy, enhances its market appeal.
- Delta Electronics Thailand PCL: This firm is a leading supplier of power modules for data centers and electric vehicles. Delta is expanding its production capabilities to meet rising demands in sectors like cloud computing and AI. Despite its growth, the company’s stock performance has not yet aligned with the Thai equity benchmark, indicating potential for future gains.
- Gulf Energy Development PCL: Known for its robust energy and infrastructure portfolio, Thailand’s Gulf Energy is expanding its data center capacity. A collaboration with Singapore Telecommunications Ltd aims to attract more hyperscale clients, with the first phase of data center expansion expected to be complete by next March.
- FPT Corp: Vietnam’s largest listed tech company has seen its shares increase by nearly 40% this year, driven by optimism surrounding its partnership with Nvidia. FPT is anticipated to see earnings growth of over 20% in the next two to three years. The company’s efforts to strengthen ties between Vietnam and the U.S. are likely to further enhance its position in the technology industry.
While the full impact of AI on earnings is yet to be determined, the technology’s nascent stage coupled with vast potential suggests significant upside for the region. The expansion of AI capabilities in Southeast Asia is not only a testament to its growing importance in the global tech landscape but also highlights the strategic shifts in investment patterns favoring infrastructure and utility-based companies.
Key Takeaways:
- Strategic Shift: Southeast Asia’s emergence as a tech hub is catalyzed by lower operational costs and a strategic position in the global market.
- Company Growth: Notable companies like YTL Power and TNB are set to benefit greatly from the region’s pivot towards AI infrastructure.
- Future Outlook: With projections pointing to Southeast Asia becoming a leading data center hub, the long-term growth prospects for companies in this sector appear promising.
This shift presents a compelling narrative of transformation and opportunity, signaling a new era for Southeast Asia in the global economic arena.
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