KUALA LUMPUR (Feb 1): The artificial intelligence (AI) race, which in recent years supported the case of a global, multibillion-dollar AI data centre infrastructure boom, has reached an inflection point, where investor fear could put the entire investment story at risk.

Tighter US restrictions on AI processor exports, aimed at limiting China's access, have raised concerns on its impact to companies assembling, buying, and leasing AI computing power.

Then China sprang a surprise with DeepSeek’s latest chatbot that rivals its US counterparts despite claims of less funding, lower computing power (and using second-tier processors), and reduced energy consumption.

This development, along with regulatory risks involving the world’s two biggest economies, has stalled the multi-year AI-linked stocks frenzy. 

In Malaysia, premium valuations ascribed to companies positioned along the AI value chain, which helped drive some stocks to double in value, are being tested, with over RM35 billion in market capitalisation erased from these companies so far this year.

The sell-off more than discounted AI-related ventures in some of the companies’ valuations, while software and hardware experts and data centre entrepreneurs have warned that the situation will remain fluid in the coming months, partly as investors factor in lower projected growth or increased competition.

However, a founder and managing director of a regional digital services firm believes the expected cost reductions and lower entry barriers could accelerate AI’s mass adoption.

“It’s definitely a Sputnik moment (when Russia surprised US with the first satellite in orbit in the 1950s), leading to the Jevon paradox,” said the MD, pointing to how the increased efficiency will results in more — not less — consumption of the required resources, such as electricity and computing power.

Different companies are impacted differently by the development, including YTL Power International Bhd (KL:YTLPOWR), which shed RM10 billion in market capitalisation — the most among local-listed AI proxies — this year.

Once sought after due to its first-mover advantage as an Nvidia-powered data centre developer, the same status has caused more uncertainty in the face of US chips export curbs and the emergence of DeepSeek.

In the first of two cover stories this week, we explore whether value has emerged in AI-related stocks following the sell-off last week.

A side story explores how YTL Power and YTL Corp Bhd's (KL:YTL) unexpected announcement of a proposed bonus issue of warrants, which are non-tradable, added to the selldown.

Considering the steep sell-off and Malaysia’s role as a global data centre hub, is the selling overdone? And have valuations returned to levels before the frenzy?

Briefly, what are the indicators that those following the sector would watch out for? What’s next in this break-neck-pace AI race?  

Read more in this week’s issue of The Edge Malaysia.

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A look at the states’ fiscal health

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