One of the Biggest AI Boomtowns Is Rising in a Tech-Industry Backwater

ISKANDAR PUTERI, Malaysia— Gary Goh was the chief executive of a publicly listed property developer three years ago when prospective clients started asking whether his company had land for data centres.

Goh was vaguely aware that technology companies needed computer centres to manage heaps of data, but he had never seen such a building. “I didn’t know whether it was round, was it a rectangle, was it a triangle?” he said.

But after the 10th inquiry, Goh realised the tech industry was about to spend billions of dollars on data centres in his sleepy corner of Malaysia. So he quit his job to cash in.

Nowhere else on Earth has been physically reshaped by artificial intelligence as quickly as the Malaysian state of Johor. Three years ago, this region next to Singapore was a tech-industry backwater. Palm-oil plantations dotted the wetlands. Now rising next to those tropical trees 100 miles from the equator are cavernous rectangular buildings that, all together, make up one of the world’s biggest AI construction projects.

TikTok’s Chinese parent company, ByteDance , is spending $350 million on data centres in Johor. Microsoft just bought a 123-acre plot not far away for $95 million. Asset manager Blackstone recently paid $16 billion to buy AirTrunk , a data-centre operator with Asia-wide locations including a Johor facility spanning an area the size of 19 football fields. Oracle last week announced a $6.5 billion investment in Malaysia’s data-centre sector, though it didn’t specify where.

In all, investments in data centres in Johor, which can be used for both AI and more conventional cloud computing, will reach $3.8 billion this year, estimates regional bank Maybank.

“At first glance, Johor seems unlikely, but once you double click on it, it makes a lot of sense,” said Peng Wei Tan, a Blackstone senior managing director who helped lead its acquisition of AirTrunk.

To understand how one of the first boomtowns of the AI era sprouted at the southern tip of the Malay Peninsula, consider the infrastructure behind AI.

Tech giants want to train chatbots, driverless cars and other AI technology as quickly as possible. They do so in data centres with thousands of computer chips, which require a lot of power, as well as water for cooling.

Northern Virginia became the world’s biggest data-centre market because of available power, water and land. But supply is running low. Tech companies can’t build data centres fast enough in the U.S. alone.

Enter Johor. It has plentiful land and power—largely from coal—and enough water. Malaysia enjoys generally friendly relations with the U.S. and China, reducing political risk for companies from the rival nations.

The other important factor: location. Across the border is Singapore, which has one of the world’s densest intersections of undersea internet cables. Those are modern-age highways, enabling tech companies to sling mountains of data around the world.

“This Johor development isn’t for serving just Malaysia,” said Rangu Salgame , chief executive of Princeton Digital Group, a data-centre operator that counts some of the world’s biggest tech companies as clients. “This is AI being deployed globally.”

Working with government

Salgame said companies previously built data centres in Singapore because of its interconnectivity. But in 2019, the tiny and densely populated island nation put a moratorium on new centres because of energy constraints. So data-centre operators did the next best thing, which was to go an hour across the bridge.

While Amazon , Google, Meta and other tech giants run their own data centres, they also rely on third-party data-centre operators for 30% of their needs in the U.S. and about 90% of their needs internationally, Salgame said.

The third parties construct data centres, which cost $1 billion to $2 billion each. Tech companies act as tenants, installing their own hardware inside. Most Johor data centres are run by third parties, which don’t necessarily have agreements with tech clients before starting projects.

“We’re going in speculatively,” Salgame said.

Salgame said he gets insights from big tech companies before beginning projects, so he has a sense of what they want. And the sense now is they want Johor.

Salgame predicts that the Malaysian state will become the world’s second-biggest data-center market within five years. “I’ve never seen anywhere in the world come up at this speed,” he said.

The industry measures data-centre markets by the electricity they use. Northern Virginia has about 4.2 gigawatts active and an additional 11.4 gigawatts under construction, committed or in early stages, said Vivian Wong , an analyst at research firm DC Byte.

Johor, after having less than 10 megawatts—or 0.01 gigawatts—three years ago, now has 0.34 gigawatt active and an additional 2.6 gigawatts under construction, committed or in early stages.

Help from government

Government officials have mostly encouraged the investments, streamlining the permitting process. Salgame said his company’s Johor center was proposed, constructed and operating within 15 months.

But the mayor of Johor Bahru, the state capital, said the government must balance economic benefits with local needs. He said it should consider building desalination plants, among other things, to ensure locals have enough water. The area has faced shortages.

“We know that people are too hyped about data centres,” said the mayor, Mohd Noorazam Osman, at a recent conference.

After quitting his property-development job, the 40-year-old Goh started consulting for potential land buyers and sellers. His specialty was knowing which sites among the plantations and swamps could be easily converted into data centres.

He found success in the Johor city of Iskandar Puteri, where telecom carriers recently broke ground on a 42-acre lot across the street from a McDonald’s. The site isn’t perfect. A hill needs to be flattened before further construction occurs.

But on a recent sweltering day, Goh pointed at the power lines and light-blue water pipes running through the lot, signifying easy access to electricity and water. “These conditions are hard to come by,” he said.