KUALA LUMPUR, Jan. 20 (Xinhua) -- Analysts are turning cautious about Malaysia's data center development as the U.S. Artificial Intelligence Diffusion (USAID) rules present a structural risk to the multi-year growth story.

RHB Investment Bank said in a note on Monday that experts from the research house expect the policy overhang to cloud the prospects of the data center market in the near to midterm, potentially stifling investments.

It opined that the proposals may have wider implications across the entire technology value chain.

According to the research house, there are concerns about co-location providers, whose growth may be impeded in the medium to longer term.

It noted that the new rules favor the U.S.-based hyperscalers, with AI computational capacity controlled via trusted allies (Tier-1 countries).

The policy response will likely crimp the exports of graphics processing units (GPU) to Tier-2 markets, with non-verified end user (VEU) entities likely to be the worst hit via capacity caps and conditional quotas, it said.

It is noted that the USAID policy tightens export controls implemented in 2022 and 2023. Under the interim final rule announced on Jan. 13, global licenses will be required to import the U.S. AI chips with countries divided into three groups.

Close allies and partners (Tier-1) are exempted from regulatory controls on AI exports, as they carry a low risk of theft and diversion.

Countries of concern (Tier-3) -- those where the United States has an arms embargo -- will see a blanket ban enforced.

Most countries, including Malaysia, are classified as Tier-2, where significant AI investments are being made by the United States and non-U.S.-based hyperscalers and co-location providers. Enditem

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