Malaysia's Tech Sector Rides AI, Data Centre Wave This Year And Into 2026

By Siti Noor Afera Abu

KUALA LUMPUR, Dec 9 (Bernama) -- Malaysia’s technology (tech) sector continued its strong momentum in 2025, powered by rapid advances in artificial intelligence (AI) and a boom in data centre investments, amid intensifying strategic competition between the United States and China.

This year, Malaysia remains an attractive alternative for multinational technology investors, with Penang and Johor standing out as the country’s primary tech hubs.

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Penang, dubbed as Malaysia’s Silicon Valley, continued to lure semiconductor and high-value electronics manufacturers, supported by its robust supply chain and skilled talent pool. 

Johor, meanwhile, cemented its position as a rising data centre cluster and strategic extension of Singapore’s digital infrastructure spillover, drawing billions in cloud, AI, and hyperscale investments. 

Government incentives, public-private collaborations and growing confidence among global tech companies have reinforced the country’s place on the regional technology map.

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The sector’s growth is further supported by government initiatives under the Malaysia Digital Economy Blueprint (MyDIGITAL) and by stronger foreign investment in data centres and cloud computing.

Prime Minister Datuk Seri Anwar Ibrahim stated that companies benefit from tax incentives and research and development support, encouraging the development of local talent and collaboration across industries to boost technological advancements and operational efficiency.

Investments in 2025

In the first half of 2025 (1H 2025), approved investments in the AI sector reached RM13.29 billion.

The data centre and cloud vertical was the leading area of investment under the Malaysia Digital initiative, contributing RM30.95 billion to total digital investments.

According to the Malaysian Investment Development Authority (MIDA), Malaysia continued to chart a resilient course in the 1H 2025, recording RM190.3 billion in approved investments across the services, manufacturing, and primary sectors, an 18.7 per cent increase compared to the same period last year.

In the 1H 2025, RM88.3 billion or 46.4 per cent of approved investments were aligned with the National Investment Aspirations’ (NIA) priority sectors, namely advanced technology, digitalisation, green growth, and inclusivity.

A total of 143 data centre investment projects have been approved between 2021 and June 30, 2025, including 25 projects with Malaysia Digital status under the Digital Ecosystem Acceleration Scheme incentive, with total investments worth RM144.4 billion and the creation of 1,429 new jobs.

Furthermore, major global tech players have announced substantial investments in Malaysia, particularly in data centres and AI infrastructure, including commitments from Microsoft, Google and Amazon Web Services (AWS).

On July 29, YTL Power International and Nvidia Corporation signed an agreement to develop US$2.36 billion (US$1=RM4.12) of AI infrastructure in Malaysia, and on Oct 31, Malaysia’s first Nvidia-powered AI data centre in Johor became operational.

On Feb 12, Asia Pacific and Japan hyperscale data centre specialist AirTrunk announced plans to develop its second cloud and AI-ready data centre, AirTrunk JHB2, located in Iskandar Puteri, Johor.

Meanwhile, Basis Bay’s collaboration with ST Telemedia Global Data Centres was described as a model of how regional partnerships can strengthen Malaysia’s position as a digital hub for Southeast Asia.

Data centre development blooms this year

This year, the data centre market in Malaysia boomed, driven by demand for cloud computing and rising AI workloads.

Currently, Malaysia has 119 data centres listed, with 15 different markets (locations) in Malaysia.

Johor is becoming Southeast Asia's fastest-growing data centre hub, which is expected to account for 60 per cent of Malaysia’s capacity by 2030.

Anwar, citing third-quarter 2025 gross domestic product (GDP) data, noted that the services account turned around to record a surplus of RM0.7 billion in that quarter, marking the first surplus in 14 years.

He explained that the achievement was driven by the MADANI Economy strategies, digital transformation through the New Industrial Master Plan (NIMP), the energy transition agenda, the National Semiconductor Strategy (NSS) and high-impact sectors such as data centres.

The rapid development of data centres has benefited the national economy. Although their construction requires substantial initial imports, the assets would eventually generate significant service exports after operations begin, thereby contributing to the overall improvement of the services sector.

“Service export earnings from data centre development are now showing very strong performance,” Anwar stated.

Strengthening Malaysia’s position in the technology ecosystem

This year, while serving as ASEAN 2025 chair, Malaysia also played an important role in driving the tech sector, including the ASEAN Technology Cooperation and Development Summit and ASEAN Digital Ministers' Meeting, focusing on AI, cybersecurity and digital economy frameworks.

The Digital Economy Framework Agreement (DEFA), which aims to boost digital cooperation and trade in the region by establishing rules in areas such as data flows, e-payments, and cybersecurity, has made significant progress in negotiations, with the goal of concluding and signing the agreement in 2026. 

At the same time, the Malaysia-US Agreement on Reciprocal Trade (ART), signed by both US President Donald Trump and Anwar on Oct 26 during the 47th ASEAN Summit and related meetings, allows over 1,700 categories of Malaysian goods to enter the US duty-free, including the electrical and electronic sector, which is vital to Malaysia’s economic growth.

Under the ART, Malaysia is now recognised as a trusted supply chain partner, which is expected to facilitate smoother trade flows in goods, including strategic and high-tech products.

Furthermore, Malaysia is intensifying efforts to position itself as a global hub for the semiconductor industry, in line with the government’s strategic aim of moving up the value chain towards integrated circuit design and advanced manufacturing.

According to the Malaysia Semiconductor Industry Association (MSIA), the NSS underscores the country’s commitment to strengthening its role in the global technology ecosystem through targeted investments, talent development, and strong collaboration between the government, industry players, and local startups.

Outlook

According to the Ministry of Digital, 2026 will be a significant milestone in its efforts to elevate Malaysia into an AI-driven nation.

The ministry noted that the country’s AI ambition goes beyond technology development, as it involves creating a comprehensive ecosystem that integrates policy, talent, digital trust, and investment, enabling Malaysia to position itself as a competitive, high-impact regional AI hub.

To realise this goal, the government has allocated RM1.36 billion to the ministry under Budget 2026, including RM248.5 million for operating expenses and RM1.11 billion for development projects.

Hence, most analysts said Malaysia’s tech sector outlook for 2026 remains optimistic, driven by the government’s initiatives expected to boost the industry.

-- BERNAMA