Can Malaysia Sustain Its Data Center Boom?
Recently, Malaysia has become one of Southeast Asia’s biggest hubs for artificial intelligence and data centers. As demand for AI, cloud services, and data storage grows, companies have invested billions of dollars in the country. However, because data centers use large amounts of electricity and water, Malaysia must decide if it can sustain this industry without sacrificing its own resources. Can Malaysia continue to expand this industry without putting too much pressure on its own resources?
Malaysia has several advantages that make it attractive for data centers. Electricity is relatively affordable, land is available, and Singapore is right next door. Singapore is one of Asia’s major digital hubs, with strong demand for cloud computing and AI services, making Malaysia an attractive location for companies looking to expand. Singapore has also faced limits on land and electricity, leading it to temporarily restrict new data center developments between 2019 and 2022. This encouraged companies to expand into Johor, where they could remain connected to Singapore’s digital networks at lower operating costs. Johor now accounts for around 80 percent of Malaysia's operational data center capacity. Moreover, Malaysia’s total capacity is expected to rise from around 0.9 to 1 gigawatt in 2025 to as much as 3 to 4 gigawatts by 2029. Malaysia is building more infrastructure to support the region’s growing demand for AI, but it remains unclear how much of the economic benefit will stay in the country.
For Malaysia, the goal is greater than just hosting more data centers. The country seeks to become a stronger AI and technology hub, with companies, including Amazon and Microsoft, investing heavily in the sector. Data centers provide the computing infrastructure needed for AI and cloud services, but attracting this investment means supporting the growing demand for resources.
In this case, electricity is a major concern since data centers operate 24 hours a day and require a constant power supply. During high temperatures in August, they accounted for 9.3 percent of electricity use in Peninsular Malaysia, and that share could eventually reach 31 percent by 2035.
Electricity is not the only concern. Data centers also require water to keep servers from overheating. A 100-megawatt facility can use around 4.2 million liters of water each day. This is particularly concerning in Johor, where existing water infrastructure may struggle to meet future demand. According to BIMB Research, the state’s water utility estimates that Johor will need roughly one billion liters (1,000 mld) of additional daily water supply capacity by 2030. Expanding the water system could be costly, adding to the financial burden of supporting the growing industry.
Beyond these immediate infrastructure concerns, Malaysia is also trying to move toward cleaner energy. The country plans to fully retire coal-fired power by 2044; however, rising data center demand could make that transition harder. Malaysia is expected to need around 9 gigawatts of additional gas-powered capacity by 2032. The country’s Energy Commission also reported that electricity demand reached new peaks in 2025, partly because of data center expansion.
Another question is what Malaysia actually gets in return. Data centers require major investment to build, yet once they are operating, one facility may employ only around 30 to 50 full-time workers. Much of the technology and intellectual property behind Malaysia’s growing technology industries also remains foreign-owned. Malaysia could supply the land, electricity, and water while a large share of the long-term value stays with foreign companies.
Even so, this does not mean data centers are a bad investment for Malaysia. According to the Malaysian Investment Development Authority, data center and cloud computing projects accounted for RM95.8 billion in approved investments in the first half of 2026, nearly 44 percent of the country’s total approved investments. The government has already taken steps to manage the industry’s growth. In December 2024, it introduced sustainability guidelines to improve electricity and water efficiency. Through its Digital Ecosystem Acceleration scheme, Malaysia also offers incentives to encourage sustainable investment, partnerships with local businesses, and high-value job creation. These efforts could help Malaysia gain more from the industry, but their success will depend on how effectively they are implemented.
Malaysia’s data center boom could still become an important part of its technology sector, but its long-term success will depend on more than just foreign investment. The government will need to ensure its policies support the industry’s growth without placing too much pressure on local resources. More importantly, Malaysia needs to see real economic benefits from the infrastructure it provides.