(Bloomberg) — As tech giants pump billions of dollars into infrastructure over the next few years, stock investors are scouring Southeast Asia for alternatives to play into the artificial intelligence (AI) theme.
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Low energy and land costs are making it popular with power producers as data centers spring up in the region, analysts say, with companies in IT services, communications and semiconductors also standing to benefit.
“Power utilities and companies that provide electrification and grid power are much more interesting to us,” said Kenneth Tan, portfolio manager at Nikko Asset Management.
Southeast Asia's relatively low production costs and strong position in the global semiconductor value chain are making it increasingly attractive as the next location for data centers, signaling a turnaround for a region that was once shunned by investors because of its lack of exposure to technology.
The technology is still in its early stages, so the extent of AI's contribution to revenue remains to be seen, but the upside potential is significant, analysts say. According to Morgan Stanley, the region is expected to become the world's second-largest non-U.S. data center provider after China by 2027, setting the stage for a multi-year growth cycle for supply chain companies.
Below is a list of Southeast Asian stocks that analysts rated best positioned to ride the AI boom.
YTL Power
Shares in Malaysian utility company YTL Power International have doubled since it inked a deal with Nvidia to build a $4.3 billion AI data center in the state of Johor.
The company is the only new data center operator in Southeast Asia with 500MW of solar power installed, “which should set it apart for customers looking for clean energy and fast capacity,” Macquarie Group analysts including Charles Younts wrote in a note last month.
Tenaga National
Malaysia's sole power grid operator, Tenaga Nasional Sdn Bhd, will be “the biggest beneficiary of the growth of ASEAN data centers,” Morgan Stanley analysts including Mayank Maheshwari wrote in a note dated May 15. Robust electricity demand could see the company's profits double in three years, they said.
The company expects power demand from data centers to exceed 4,300MW by 2035. Tenaga's renewable energy efforts should also boost its appeal: Its shares have risen 32% so far this year.
Delta Electronics
Delta Electronics Thailand PCL, a leading supplier of power modules for data centres and electric vehicles, will be a key beneficiary of the AI data centres to be built in Asean, given “supply chain resilience” and customer demand for cooling solutions, said Wern-Huang Chan, a technology analyst at HSBC Holdings Plc.
The company expanded its electronics manufacturing capacity in March and is building a new factory to make parts for the automotive, cloud computing, data center and AI sectors. This may help earnings growth, but its shares are trading below Thailand's equity benchmark, suggesting it has some catching up to do.
Gulf Energy
Thailand's Gulf Energy Development PCL is another power producer expected to benefit from rising power demand and the expansion of data center infrastructure. Morgan Stanley analysts say the company is “well-positioned in the energy and infrastructure business, with a portfolio of green energy projects and an extensive business network in both domestic and international markets.”
Gulf is looking to increase its data center capacity, with the first phase due for completion in March next year, and has also partnered with Singapore Telecommunications to attract more hyperscalers.
Fast
Shares in FPT, Vietnam's largest listed technology company, have risen nearly 40% this year on optimism about the partnership with Nvidia. The software and communications company is expected to achieve revenue growth of more than 20% over the next two to three years, said Ruchir Desai, a fund manager at Asia Frontier Capital.
Vietnam's efforts to deepen strategic ties with the US will also help the Southeast Asian country move up the tech industry value chain, boding well for FPT.
–With assistance from Ishika Mookerjee.
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