The Asia-Pacific region is set to see strong data center demand over the next few years, which is a boon for artificial data center operators and hyperscalers’ expansion 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% in the next five years, adding nearly 2 gigawatts of new capacity per year, analyst Sriharsh Singh said in a Tuesday note. “Data center demand continues to shift towards hyperscalers (Microsoft, Amazon, Google, ByteDance) with data center investments growing in scale,” Singh said in a Tuesday note. Hyperscalers are large cloud service providers. “APAC as a proportion of hyperscale capacity stands at 26%…. We think APAC is under-indexing as a share of hyperscaler capacity, which will result in catch-up spend in the region,” the analyst added. The APAC region — which encompasses countries from East Asia to Southern Asia and Oceania — saw just about 1 gigawatt of new capacity additions per year between 2018 and 2023, reflecting a ramp up in hyperscaler demand amid the ongoing adoption and buildout of generate AI models, Singh said. Hyperscalers are continuing to expand their cloud infrastructure hubs across the Asia Pacific. Amazon on Wednesday announced that it plans to invest more than $6.2 billion to support its Amazon Web Services infrastructure in Malaysia through 2038. In January, the e-commerce giant had announced a 2.26 trillion yen investment plan to expand cloud computing in Japan. Microsoft and Google also recently each announced cloud and AI infrastructure investments of about $2 billion into Malaysia. Growth in the APAC region Globally, the adoption of generative AI models are expected to drive as much as one-third of incremental data center demand in the next five years, Singh said. According to the analyst, APAC will benefit from the localization of latency-sensitive inference workloads — tasks that require results from machine learning or AI to be done in a quick frame — in the next 18 to 24 months. Bank of America mentioned two key stocks that are tapping into this growing data center demand in APAC: GDS Holdings and KT Corp . The firm has a buy rating on high-performance data center developer GDS , its strongest conviction idea for this year given AI data center-related opportunities in the APAC region — but also because of the company’s robust international business expansion. GDS is heavily exposed to the greater Chinese market, as well as markets in Japan, Singapore, Indonesia and Malaysia. Along with Singh, BofA’s Daley Li had reiterated the firm’s bullish outlook and raised its price target on the stock in a Tuesday note after GDS reported higher-than-expected revenue for the second quarter. The firm’s $22.40 price target on U.S.-traded shares suggests GDS has nearly 37% upside from Wednesday’s close. This year, GDS shares have soared 79.8%. “We see strong demand in the international market and remain positive on its growth, especially in FY25-26E,” Li said. GDS is a top “pure-play” carrier-neutral data center operator in China, Singh pointed out, noting that it has an “abundant order backlog” and strong visibility on mid-teens earnings before interest, taxes, depreciation, and amortization growth. The analyst also highlighted South Korean telecommunications company KT Corp . The company “offers defensive exposure in a falling rate environment with optionality on DC growth” and “has no. 1 position in Korean DC market (40% share) and geographical advantages with metro Korea DC footprint,” Singh said. U.S.-traded shares of KT have advanced nearly 9% this year. Analysts polled by FactSet have a consensus price target of $17.07 per share. That indicates about 16.6% potential upside over the next year.
