The jungles of Johor, a Malaysian state located across the Johor Strait from Singapore, were initially cleared in the 1840s by Chinese clans from Singapore to cultivate black pepper. During the following century, under British colonial rule, these pepper farms were transformed into expansive plantations for rubber and oil palm. Today, those areas are being developed into data centers to cater to the growing global demand for artificial intelligence.
Johor’s emergence as a hub for data centers is partly due to limitations faced by neighboring Singapore, Southeast Asia’s digital hub. The small city-state, which imports water and power, put a hold on data center construction in 2019 due to high water consumption and electricity usage, which accounted for 7% of its total electricity. As a result, investors and data center operators shifted their focus to Malaysia, where land is inexpensive, power is readily available, and the government is enthusiastic about advancing the country’s digital economy.
The rise of Johor as a significant player in data centers is also driven by the worldwide competition for computational resources. Although Singapore lifted its ban on data centers in January 2022, the launch of ChatGPT later that year spurred a surge in global demand for AI infrastructure, leading to substantial investments in Malaysia. In 2023, Malaysia attracted over $10 billion in data center investments, a figure that tripled in 2024, making it the leading destination for such investments globally, as reported by property consultancy Knight Frank.
Johor is at the heart of this development boom. The crucial question for the state and Malaysia is whether this influx of capital and expertise will propel their economies into an era of sophisticated technological growth, or if challenges like fluctuating global demand and local resource constraints will render data centers more of a burden than an asset.
Currently, Johor is home to over 40 data centers that are either operational or under construction, as per advisory firm Baxtel, up from only a dozen in 2022. Many more data centers are in the planning stages. Data center capacity, which is determined by the power the facilities can provide, increased to over 1,500 megawatts last year from just 10 megawatts three years before, according to data center market intelligence platform DC Byte.
Should the expansion continue at this rapid rate, Johor may surpass Northern Virginia as the largest data center corridor globally within the next five years. Rangu Salgame, CEO of Princeton Digital Group, a data center operator based in Singapore, commented on this remarkable growth, saying Johor is expanding data center capacity at a pace and scale unprecedented globally. Princeton Digital, which is backed by private equity firm Warburg Pincus, launched the first phase of a $1.5 billion data center campus last year and plans to add a second campus with a capacity of 200 megawatts nearby.
Other major corporations making significant investments in Johor include global technology firms such as Nvidia, Microsoft, Alphabet, and Oracle, along with data center operators like California’s Equinix, Japan’s NTT Data, and China’s GDS Holdings.
The advent of large language models (LLMs) in the U.S. and China has catalyzed the data center expansion in Malaysia. In the past, for many data center services, proximity to end-users was key to minimizing latency. However, training LLMs is not interactive, allowing data centers to prioritize factors like affordable power and land, even if they are located far from their designers or intended users.
Malaysian Prime Minister Anwar Ibrahim has embraced the data center growth, implementing strategic initiatives, including tax incentives and expedited approval processes, to establish the country as a global AI hub. The Green Lane Pathway, initiated in 2023 by Tenaga Nasional Berhad, Malaysia’s primary electricity utility, aims to cut the time required to connect data centers to the grid from over three years to just 12 months.
Despite these developments, the data center boom is exerting pressure on Malaysia’s resources, similar to the situation in Singapore. Malaysia faces significant water stress, and the National Water Services Commission has warned of potential water shortages in the coming years, exacerbated by climate change and aging infrastructure.
Power demand is another challenge, as medium-sized data centers can consume as much electricity annually as 125,000 homes, and large AI processing centers require up to 500 megawatts of power, equivalent to the annual consumption of the roughly 250,000 households in Johor Bahru, Johor’s largest city. Additionally, Malaysia’s equatorial location necessitates extensive energy use for cooling these facilities compared to cooler northern regions.
Johor Bahru Mayor Mohd Noorazam Osman has expressed concerns regarding the water and power shortages during a recent investor conference, emphasizing the importance of balancing investment promotions with local and domestic needs.
In response, the Malaysian government anticipates that data centers will pay higher prices for water and power, and indications suggest tech firms are prepared to meet these demands. Authorities have also rejected data center projects that failed to comply with efficiency and sustainability standards.
The burgeoning power demand from data centers could potentially benefit Malaysia by advancing its transition to renewable energy. By 2020, only about 4% of Malaysia’s power came from renewables, a figure projected to surpass 30% this year. The government aims to increase renewable energy’s share to 70% of total generation capacity by 2050.
Johor is collaborating with Singapore to promote cross-border economic cooperation through a “special economic zone” agreement, aimed at streamlining trade and facilitating the movement of skilled labor. However, it remains uncertain whether data centers will substantially boost Johor’s economy, where GDP per capita is modest compared to Singapore. Furthermore, it is unclear if Malaysia can leverage data center development to attract other tech industries like chip manufacturing.
There is also a risk of a global data center bubble. The “DeepSeek Shock” in China could potentially diminish demand for data centers worldwide if it leads to AI models that are more cost-effective and less reliant on advanced chips and large data centers.
Despite these risks, Salgame remains optimistic about the demand for computational power from the data centers in Johor, believing that more efficient AI models will only amplify AI usage and the need for economical AI training centers in regions like Johor.
This analysis was originally published in Fortune, April/May 2025 issue, with the headline “Malaysia’s data center power play.” The story was first featured on Fortune.com.
