Another take from remisier...

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🧠 Fresh Oven’s DC Take 🧠

‼️ First Wave of News – 9 Jan

Key developments that jolted the market:

i) Malaysia (MY) classified as a Tier 2 country;
ii) Import restrictions capped MY’s ability to import only 50k GPUs over two years;
iii) Data center operators limited to deploying a maximum of 7% of their computing capacity in any single Tier 2 nation, including MY.

Impact: These announcements triggered a massive selldown across AI/DC-related names, including DC builders, PropCon, Tech EMS, and MEP players, with declines ranging from 7-23% on a sharp reversal from the AI euphoria seen prior to 9 Jan.

Market Observation: Channel checks across Institutional funds, Retailers, HNW, and other investors revealed a black swan reaction, with many rushing to lock in profits or cut losses amidst fears of further downside. This sentiment-driven response resulted in a clear mean reversion among AI/DC names.

That said, not everyone is throwing in the towel; some are eagerly eyeing the opportunity to scoop up bargains at the bottom.

✅ Second Wave of News – Shedding More Light on Hopes? (13 Jan)

Could the MY market react positively? Here’s why optimism is building:

i) Clearer regulatory flexibility with six key mechanisms:

• No restrictions for 18 key allied nations.
• Leeways through U-VEU and N-VEU statuses, allowing up to 50k–320k advanced GPUs under specific conditions.
• Bilateral flexibility via G2G arrangements to address unique needs.

ii) 120-day comment period on the framework, which opens up opportunities to revise or soften the regulations, balancing the initial fallout.

iii) NVIDIA’s Statement on the “AI Diffusion Rule”
• Critiques the Biden Administration for its regulatory overreach, which risks stifling innovation and undermining U.S. technological leadership.
• Asserts that non-enforceability for 120 days provides a window for recalibration.
• Highlights the possibility of policy reversal or moderation under a new administration (e.g., Trump’s inauguration).

🧐 Thoughts / Implications

The market could transition from panic to a more measured outlook on this new variation, supported by:

i) Regulatory flexibility bringing clarity and leeway.
ii) Hopes for policy moderation following Trump’s inauguration (20 Jan).
iii) Structural demand growth tailwinds in AI and data centers, which remain intact despite short-term disruptions.

👋🏻 For long-term investors, this extreme volatility (could be just one of it) presents attractive entry points into:

• Fundamentally strong names positioned to benefit from secular growth trends.
• Perceived-implicated names that are fundamentally unaffected by the new framework.

🔍 Sector Views:

Tech/Semicon: MY OSAT and SPE players are not overly reliant on AI growth in our view, with earnings deriving from FE capex cycles and BE expansion (Auto, Industrial, PC, EV, Medical, RE, Communication, IoT). AI acts as an additional tailwind but isn’t the sole driver.

Most players show better earnings visibility following a prolonged consolidation phase (saved for EV which is still on consolidation now)

Fundamentally, the sector appears less vulnerable to policy disruptions compared to AI-dedicated plays.

EMS: Selective names like NationGate and PIE, heavily exposed to AI server/parts assembly, face greater vulnerability. However, the recent mean reversion (10-23% decline since 7 Jan) has partially priced in the negative news.

NationGate currently trades at 25x 2025 PE, with consensus assuming 3k–5k AI GPU assemblies. Understand that investors into this name are waiting on potential regulatory leeways or policy recalibrations under Trump’s administration, which could soften the impact.

DC builders/owners: Quoting news from The Edge -

YTL Power International Bhd managing director Datuk Seri Yeoh Seok Hong reiterated that the group is the first non-US company selected in Asia to partner Nvidia Corp to deploy and manage a supercomputer driven by the GB200 Blackwell GPUs or graphic processing units in the region. (By The Edge)

🎯Final Take: The odds hinge on whether additional regulatory leeways or a less punitive stance materialize, potentially spurred by Trump’s inauguration.

In the meantime, fundamentally sound, diversified names in Tech and EMS offer compelling opportunities for long-term investors willing to ride out the current volatility. The secular growth story in AI and data centers could be here to stay, and history suggests such disruptions often pave the way for strong recoveries. And of course, all with the right valuation :)

$NATGATE / 0270 (NATIONGATE HOLDINGS BERHAD) $PIE / 7095 (P.I.E. INDUSTRIAL BERHAD) $YTLPOWR / 6742 (YTL POWER INTERNATIONAL BHD)