In global stock markets, worries about the economic damage from US President Donald Trump’s tariff blitz seem like a distant memory. The overriding concern in the past few months has been the threat of a bubble in artificial intelligence (AI).
In Bank of America’s latest monthly global fund manager survey, an AI equity bubble was cited as the top “tail risk”, posing a bigger threat than the resurgence of inflation. Although various factors are at play, the issue that most perturbs investors is the mismatch between the unprecedented sums of money being spent on computing power and data centres and the relatively meagre revenues from AI companies and services.
Morgan Stanley forecasts a staggering US$2.9 trillion of capital expenditure on data centres worldwide between 2025 and 2028. Despite that, total revenues from the generative AI market this year are expected to reach only US$30 billion, according to S&P Global Market Intelligence. Many analysts see a significant risk that AI fails to generate the revenue needed to justify the massive investment in data centres, resulting in overbuilding and an overhang of stranded assets.
Asia is firmly on the radar of AI bubble-watchers. The region plays a crucial role in the data centre market. According to Cushman & Wakefield, the Asia-Pacific accounts for nearly 30 per cent of operational capacity worldwide and 25 per cent of the facilities currently under construction. Moreover, Southeast Asia is a key battleground in the race for AI supremacy.
Data centres have also become an important driver of Asia’s commercial property investment market. In the third quarter of this year, data centre transaction volumes reached US$6.5 billion, exceeding volumes in the retail and hotel sectors, according to MSCI data.
Although the US state of Virginia is far and away the world’s largest data centre market – the state’s operational capacity of nearly 6 gigawatts is about half that of the entire Asia-Pacific – Beijing is the only other market currently exceeding 2GW in operational capacity. The Malaysian state of Johor, moreover, is poised to become a 1GW market by the end of next year, attesting to the scale and rapidity of development across Asia.