In March and April 2026, Iranian drone strikes hit Amazon data centres in the UAE and Bahrain and an Oracle facility in Dubai — the first time commercial data centres have been physically targeted in a state-level conflict. The attacks have put 12GW of planned Middle Eastern data centre capacity in question, and the capital has begun to move toward Malaysia.
JPMorgan now estimates Malaysia’s data centre pipeline at nearly 13GW, exceeding Indonesia, Thailand, and Singapore combined. Johor, with 68 per cent of Tenaga Nasional’s secured data centre power agreements, is where most of it will land.
The drone that struck Amazon’s UAE data centre in March 2026 took aim at a building. It hit an assumption. For two decades, hyperscalers built data centres as if geopolitics happened elsewhere — in policy papers, in trade negotiations, on someone else’s balance sheet. When Iranian drones struck three US-linked facilities in six weeks, the assumption collapsed.
Physical strikes on data centres are not cyberattacks. They are not outages. They are a category of risk the industry had no priced-in model for — because until March, there was no precedent at this scale. The Middle East has become a place where servers are military targets. That changes where the next decade of cloud and AI infrastructure gets built.
Get the latest APAC news as it happens — follow Indoneo on Facebook
Capital does not wait for certainty. It moves toward the nearest stable alternative and prices in the rest later.
The pipeline that passed three neighbours combined
JPMorgan’s July 7 research note estimates Malaysia’s data centre pipeline at nearly 13GW — exceeding Indonesia, Thailand, and Singapore combined. The estimate arrived three months after the first drone struck.
Tenaga Nasional Bhd has already secured electricity supply agreements for 59 projects with a combined capacity of 8.3GW. Of that, 68 per cent sits in Johor. About 72 per cent of the projects originate from the United States and Singapore — the two countries with the most to lose from Middle Eastern instability.
RHB Investment Bank’s July 14 sector report frames it bluntly. Heightened geopolitical risk and energy market swings, its analysts wrote, are forcing a rebalancing of data centre portfolios toward Southeast Asia. Malaysia, with competitive land and energy economics and established US hyperscaler cloud regions, is the natural destination.
Kishore Ramakrishnan, director at Fitch Ratings covering Asia-Pacific infrastructure, points to the basics. Johor has land, power, and water — the three constraints that have capped Singapore’s growth. He said Johor drew spillover demand precisely because it offered what Singapore could not: enough of all three to build at scale.
JPMorgan’s Asia Pacific equity team captured the dynamic in a single line. Singapore wrings maximum output from every megawatt it has. Malaysia captures the next megawatt of demand.
For a hyperscaler with a Dubai cloud region and a 15-year investment horizon, the calculation has shifted. The question is no longer whether to diversify. It is whether Johor’s 897MW of operational capacity can scale fast enough to absorb what is coming.
RHB projects more than 3GW of data centre supply in Malaysia into 2030 — roughly MYR90bn in construction value. The figure captures what the drone strikes set in motion.
No hyperscaler has publicly cancelled a Middle Eastern commitment. TA Research’s forecast infers a capital shift from the risk. It has not yet appeared in disclosed capital expenditure. The gap between inference and confirmation is where the next quarter’s earnings calls will matter most.
The gap between Middle Eastern plans and Johor’s existing capacity is visible in the spread between 12GW and 897MW.
The three forces deciding where servers land
The redrawing of data centre geography is not a single event. It is three forces hitting at once.
The first is physical. Iranian drones struck Amazon facilities in the UAE and Bahrain in March, and an Oracle facility in Dubai in April. These were structural hits on buildings housing servers. For an industry that measures risk in uptime percentages, physical attack is a category no actuarial model had priced.
The second is regulatory. Singapore is introducing stricter energy and water efficiency rules for facilities above 3MW IT load. JPMorgan expects these to lift capital and operating costs — reinforcing Malaysia’s role as the preferred site for large-scale hyperscale and AI projects.
The third is energy. Higher fuel prices from the conflict push grid power costs up, which sharpens the case for renewables. Malaysia’s New Energy Transition Roadmap includes a Southern Johor Renewable Energy Corridor targeting up to 4GWp of solar capacity with storage. The government’s new residential solar rebate scheme sits on top of that.
The hyperscalers are not waiting for all three to resolve. They are signing power agreements now, in Johor, because the alternative is a region where data centres are targets and the next drone is a question of when, not if.
The drone that struck Amazon’s Bahrain facility in March disrupted financial transactions across the Gulf. It also set in motion a capital shift that will determine where the internet’s physical backbone sits for the next decade. As Johor’s land and power tighten — grid constraints are already shaping where new projects land — the same overflow demand is reaching Batam in Indonesia and sites in Thailand. The geography being redrawn is larger than Malaysia. It is the entire architecture of cloud infrastructure in a region that now prices conflict into its spreadsheets.
Beyond the headline
The Bigger Picture
Where hyperscale and AI workloads physically sit is no longer a question of cheap land or low taxes. It is now a calculation involving missile trajectories, water efficiency standards, and grid decarbonisation targets. The diversion of capacity from the Middle East and constrained hubs like Singapore into Malaysia reveals a broader truth: the geography of cloud computing over the next decade will be drawn by conflict risk and climate policy as much as by construction costs.
The Money Trail
Johor’s data centre boom is a capital story with several distinct layers — each with its own winners. Construction firms hold multi-billion-ringgit orderbooks. Utilities lock in regulated returns on gigawatt-scale power agreements. Global cloud providers arbitrage the cost gap between Singapore’s premium market and Malaysia’s cheaper land and energy. The signal to follow is where hyperscalers sign power and fibre contracts, and which local firms secure long-term build-and-operate deals.
The Timing
This investment pivot arrives at a moment when three timelines intersect. AI workloads are surging. Singapore is tightening efficiency rules on facilities above 3MW. And conflict has exposed the vulnerability of Middle Eastern data centre infrastructure. Analysts are treating the current wave of commitments into Johor not as a reaction to a single quarter’s news, but as an inflection point. Decisions made in the next 12 to 24 months on grid upgrades, renewable corridors, and efficiency standards will lock in the region’s data centre map for years.
Four bets being placed right now
With Johor’s capacity tightening and hyperscalers reassessing Middle Eastern exposure, four groups face distinct decisions.
- Western investor with APAC data centre exposure
Re-evaluate your investment thesis for Middle Eastern and Southeast Asian data centre assets. Consider increasing allocation to Malaysian entities like YTL Power, Gamuda, or Sunway Construction — all named in RHB’s July 14 sector report as direct beneficiaries. Monitor the next quarterly earnings calls of US hyperscalers for any mention of redirected capital expenditure away from Gulf facilities.
- Western hyperscale cloud provider executive
Accelerate your assessment of Johor as a primary hub for the next wave of hyperscale deployments. The cost case — cheaper land, abundant power, and a regulatory environment less constrained than Singapore’s tightening efficiency rules — is now paired with a security case that the Middle East cannot currently match. Factor Malaysia’s solar corridor and grid upgrade timelines into your site-selection models.
- Western supply chain manager for data centre construction
Investigate partnerships with Malaysian construction firms holding data centre orderbook exposure. RHB identifies Gamuda and Sunway Construction — each with roughly MYR5bn in related contracts — as the most direct plays. Adjust regional resource allocation now, before the MYR90bn construction pipeline begins converting into groundbreakings.
- Western energy sector investor in Southeast Asia
Analyse Tenaga Nasional Bhd’s secured 8.3GW of data centre power agreements and the growth runway they provide. Renewable energy firms like Samaiden Group Bhd stand to gain from the record rollout forecast over the next two to four years, while the government’s new solar rebate programme adds a policy tailwind. The energy demand from data centres alone could reach 40 per cent of Johor’s electricity consumption by 2035.
Explainer
- Hyperscaler
- A hyperscaler is a large-scale cloud service provider — such as Amazon Web Services, Microsoft Azure, or Google Cloud — that operates massive, globally distributed networks of data centres. These companies drive the bulk of new data centre construction worldwide, signing power agreements measured in gigawatts rather than megawatts. Their site-selection decisions effectively determine which regions become digital infrastructure hubs for the decade ahead.
- Johor
- Johor is Malaysia’s southernmost state, linked to Singapore by two causeways. It has emerged as the country’s primary data centre hub, hosting 897MW of operational capacity and a 2.1GW planning pipeline that makes it the third-largest data centre market in Asia-Pacific. Its proximity to Singapore, combined with cheaper land and more abundant power and water, has drawn hyperscalers seeking an alternative to the city-state’s constrained resources.
- Tenaga Nasional Bhd
- Tenaga Nasional Bhd, or TNB, is Malaysia’s largest electricity utility and the sole grid operator in Peninsular Malaysia. The company has secured electricity supply agreements for 59 data centre-related projects with a combined capacity of 8.3GW. Its regulated earnings model means that rising power demand from data centres translates directly into long-term revenue visibility, making it a proxy for the sector’s growth.
- New Energy Transition Roadmap
- Malaysia’s New Energy Transition Roadmap, or NETR, is the government’s framework for scaling up renewable energy deployment and modernising the national grid. It includes flagship projects such as the Southern Johor Renewable Energy Corridor, which aims to integrate up to 4GWp of solar capacity with battery storage over the coming decade. The roadmap is central to whether Malaysia can power its data centre boom without reversing its decarbonisation commitments.
RELATED STORIES
