The Asia-Pacific region is set to see strong demand for data centers in the coming years, which is a boon for artificial data center operators and the expansion of hyperscalers in that part of the world, Bank of America found. APAC data center capacity is set to double in five to six years at a compound annual growth rate of 14% over the next five years, adding nearly 2 gigawatts of new capacity annually, analyst Sriharsh Singh said in a note on Tuesday. “Data center demand continues to shift towards hyperscale (Microsoft, Amazon, Google, ByteDance) as data center investments increase in scale,” Singh said in a note on Tuesday. Hyperscalers are large cloud service providers. “APAC as a share of hyperscale capacity stands at 26%… We believe APAC is underperforming as a share of hyperscale capacity, which will result in cost recovery in the region,” the analyst added. The APAC region — which includes countries from East Asia to South Asia and Oceania — saw just about 1 gigawatt of new capacity additions annually between 2018 and 2023, reflecting a surge in hyperscale demand amid continued adoption and creation of AI models . Singh said. Hyperscalers continue to expand their cloud infrastructure hubs across Asia Pacific. Amazon announced on Wednesday that it plans to invest more than $6.2 billion to support its Amazon Web Services infrastructure in Malaysia by 2038. In January, the e-commerce giant had announced a ¥2.26 trillion investment plan to expansion of cloud computing in Japan. Microsoft and Google also recently announced investments in cloud and artificial intelligence infrastructure of around $2 billion in Malaysia. Growth in APAC Globally, the adoption of emerging AI models is expected to drive up to one-third of the incremental demand for data centers over the next five years, Singh said. According to the analyst, APAC will benefit from the discovery of latency-sensitive inference workloads – tasks that require results from machine learning or artificial intelligence to be done in a fast context – in the next 18 to 24 months. Bank of America cited two key stocks taking advantage of this growing data center demand in APAC: GDS Holdings and KT Corp. The company has a buy rating on high-performance data center developer GDS, its strongest conviction idea for this year, given the opportunities associated with AI data centers in the APAC region — but also because of the company’s strong international business expansion. GDS is heavily exposed to the wider Chinese market, as well as markets in Japan, Singapore, Indonesia and Malaysia. Along with Singh, BofA’s Daley Li had reiterated a bullish outlook on the company and raised his price target on the stock in a note on Tuesday after GDS reported higher-than-expected second-quarter revenue. The firm’s $22.40 price target on US-traded shares suggests GDS has a nearly 37% upside from Wednesday’s close. This year, GDS shares are up 79.8%. “We see strong demand in the international market and remain positive on its growth, especially in FY25-26E,” said Li. GDS is a leading carrier-neutral data center operator in China, Singh pointed out, noting that it has “abundant backlog” and strong visibility into mid-term earnings before interest, taxes, depreciation and amortization growth. . The analyst also highlighted South Korean telecom company KT Corp. The company “offers defensive exposure in a down-rate environment with an option to deploy DC” and “has the number one position in the Korean DC market (40% share) and geographic advantages with Korea’s metro DC footprint,” Singh said. KT’s US-traded shares have risen nearly 9% this year. Analysts polled by FactSet have a consensus price target of $17.07 per share. This shows about 16.6% potential upside in the coming year.
