This article first appeared in Forum, The Edge Malaysia Weekly on February 10, 2025 - February 16, 2025

As Artificial Intelligence (AI) continues to reshape industries across the globe, Malaysia stands at the threshold of a significant opportunity. The country, already integrated into the global semiconductor supply chain, is poised to play a more prominent role in the burgeoning AI ecosystem. But while Malaysia has several strengths, the path forward will require strategic investments in infrastructure, talent development and industry collaboration.

Malaysia’s progress in building AI infrastructure is a crucial step towards enhancing its role in the global AI landscape. AI data centres in key regions backed by partnerships between local private sector infrastructure powerhouses such as YTL and Gamuda in collaboration with global giants Nvidia and Google, supplemented by key public sector incentives, are becoming critical components of this foundation. These data centres process and store the enormous volumes of data required by AI technologies, positioning Malaysia as a potential regional hub for AI infrastructure.

Leveraging the country’s established semiconductor industry, Malaysia could further strengthen this base layer. Semiconductors, vital for AI hardware, place Malaysia in a favourable position to support global AI hardware production. With the right policies, the country could attract further investment into its hardware manufacturing sector, solidifying its role in the AI value chain. Penang’s entrenched and strong reputation in the downstream supply chain combined with the moves the Selangor state government has made in developing four integrated circuit (IC) design parks within the next five years are signs that the country means business in the global semiconductor race and is playing a role in all values of the supply chain.

While Malaysia is making strides in AI infrastructure, the technology layer — dominated by global tech giants such as Microsoft, Google and Meta — presents a more complex challenge. Recent developments in the realm of large language models (LLMs) and AI technologies, like the launch of China’s DeepSeek, are making the AI supply chain more multilateral, comparable to the Android smartphone ecosystem.

Malaysia’s direct influence in this layer is limited but there is an opportunity to play a key role in the dynamic AI supply chain. By focusing on training and reskilling its workforce, Malaysia can position itself as a hub for AI talent development and support services. If the country can build specialised AI services — such as AI operations, cloud support and AI training data processing — it could play a more significant role in this highly competitive space. The Global AI Village backed by The Hive Global AI Fund, a strategic partner to the National AI Office, is positioned to further strengthen the country’s position in global AI innovation and expose the economy to cutting-edge technologies and transformative applications from Silicon Valley and beyond.

The greatest potential for Malaysia lies in the application layer of AI, where AI technologies are applied across industries like healthcare and manufacturing. This is the layer where value creation happens and it represents the biggest upside for Malaysia’s economy. It builds demand for the consumption of the AI data centre capacity being developed in Malaysia, develops AI talent and turns the country into a global leader in AI adoption.

Venture capital firms and startups can lead the charge by developing AI-driven solutions for sectors ranging from fintech and agriculture to healthcare. As AI applications become more widespread, Malaysia’s economy could benefit from a range of AI innovations designed to increase efficiency, improve services and generate new revenue streams.

This is also where Malaysia could distinguish itself from the global AI narrative, where most AI business models focus on cost-efficiency. With the right backing, Malaysian startups could create AI solutions that prioritise revenue generation, driving economic growth not only domestically but also on the international stage.

Malaysia’s geographic and economic advantages make it an attractive destination for AI-related investment. Penang’s existing tech ecosystem, for example, is already home to many multinational technology firms. Its relatively lower costs compared to neighbouring countries provide an additional competitive edge for AI development.

Moreover, Malaysia’s government has demonstrated a commitment to fostering AI innovation through initiatives like the National AI Framework, the creation of the National AI Office and the AI Roadmap 2021-2025. These policies aim to create a conducive environment for AI startups and multinational corporations alike. However, while the policy framework is strong, the need for further workforce development is evident. A shortage of skilled talent in both AI hardware and software threatens to undermine Malaysia’s AI ambitions.

While universities and training centres are starting to introduce AI-focused programmes, the pace of AI development demands more aggressive efforts in reskilling and upskilling the existing workforce. As the global AI landscape evolves, Malaysia must ensure its talent pipeline is aligned with industry needs.

Government-backed programmes, in partnership with private sector initiatives, could help fill this talent gap. By focusing on areas such as data science, AI software development and cloud computing, Malaysia can ensure it has a workforce capable of driving AI innovation in the years to come.

For Malaysia’s AI startups, one of the most significant hurdles is the short-term nature of existing government support programmes. Startups often find these initiatives too limited in scope to make a lasting impact. Industry collaboration could be the key to overcoming this challenge.

Partnerships with major tech companies, such as Microsoft or Google, could provide startups with access to technology platforms, mentorship and resources that go beyond financial support. These relationships would enable Malaysian startups to gain visibility on the global stage, helping them scale and compete with international players.

To fully capitalise on its AI potential, Malaysia needs to continue investing in infrastructure. While there is promising progress with data centres in Kuala Lumpur and Johor, more investment is needed to make Malaysia’s AI infrastructure competitive on a global level. High-speed internet, cloud computing and broader access to computational resources are essential for AI innovation and growth.

Equally important is the need for better alignment between industry players and AI startups. Existing initiatives are often too siloed, with insufficient long-term collaboration between tech giants, startups and the venture capital ecosystem. Encouraging more industry alignment and collaboration could ensure that Malaysia’s AI startups are not only well-funded but also better positioned for global success.

Malaysia’s potential in the global AI ecosystem is clear but to fully realise it, a multi-faceted strategy is essential. By building on its strengths in semiconductor manufacturing and AI infrastructure, while addressing key challenges such as AI talent development and industry collaboration, Malaysia can position itself as a key player in the Southeast Asian AI landscape.

Government policies must continue to incentivise investments in AI infrastructure, while targeted reskilling programmes can help bridge the talent gap. In the application layer, the greatest opportunity lies in fostering startups that prioritise revenue generation and innovation. For instance, the Global AI Village is incubating for the National AI Office, a WhatsApp-based farmer AI copilot called Rakan Tani that provides digital access to subsidies, produce sales and financing — all in their local languages.

With the right investments in infrastructure, talent and industry partnerships, Malaysia has the potential to become a significant player in the AI ecosystem — not just in Southeast Asia, but on the global stage.

Datuk Syed Haizam Jamalullail is managing partner of The Hive Global AI Fund and is undertaking a year as a transformational leadership fellow at the Blavatnik School of Government, University of Oxford

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