Data centers across Asia are set for a funding boom, outpacing the U.S., following the rapid expansion of artificial intelligence (AI).
Within a week, two of the biggest operators of data centers took out their record loans to grow, especially in Malaysia. Bain Capital-owned Bridge Data Centers borrowed $2.8 billion, and DayOne Properties, previously GDS International, raised $3.4 billion.
Data centers present a great opportunity for investors
Asia is rapidly emerging as a data center hot spot, with demand forecast to grow 32% a year through 2028, far outstripping the growth in the U.S., which is expected to expand by 18%. Historically, banks have financed large projects, but private credit and infrastructure funds now take a bigger share.
Yemi Tepe, a partner at law firm Morrison Foerster specializing in tech-related financial transactions, said that growing demand for data center capacity had attracted a spectrum of capital investors and providers from the Asia-Pacific region.
Although banks have typically been the go-to funder for mega projects, the growth of private credit and infrastructure funds has diversified the pool of funds from where they can come, Tepe added.
More firms are now seeking capital
Singapore-based Firmus Technologies is seeking a $120 million loan, while Yotta Data Services, based in India, is in talks to raise about $500 million for new data center parks. The sector continues to attract a broader range of investors, from banks and real estate companies to private equity funds.
But questions linger about whether data centers are a sustainable investment or a ticking economic time bomb
Bubbles emerge when the prices of an asset increase far above their active value due to speculation and herd mentality investment, eventually making the market untenable. The threats are not limited to digital infrastructure. Overinflated valuations can have the structural implication of excessive lending, running up a burden of systemic financial vulnerabilities.
A bubble burst can secretly inflate a long-term economic crisis, which could erode demand, similar to the dot-com crash and the housing market bubble did in 2008 with their respective recessionary outcomes and market meltdowns.
Geopolitical tensions may slow down growth
While Asia’s data center market thrives, geopolitical risks could impact future growth. A deepening standoff between the U.S. and China is threatening to impose fresh tariffs on trade, cripple supply chains, and raise borrowing costs.
However, with hundreds of billions of dollars worth of investment projected to flow into villages away from China, most technology companies have started redirecting investment toward Southeast Asia, changing the economic landscape.
One of the biggest draws has been Malaysia’s Johor state, which borders Singapore. Thirty data center projects were underway or completed, and another 20 are awaiting approvals. New buildings are also planned in Thailand, where a $5.9 billion investment recently received the green light from the country.