Update 10 January on YTL Power

The US stock markets were closed in observation of a National Day of Mourning for former President Jimmy Carter. Nvidia shares dropped over 1% in after-hours trading on Wednesday.

The shares of YTL Power and those companies related to data centres in Malaysia suffered heavy selling yesterday, likely due to the news on the latest round of AI chips restriction by the US. I just quote the article published in Bloomberg / The Edge below: - quote -

‘President Joe Biden’s administration plans one additional round of restrictions on the export of AI chips from the likes of Nvidia Corp just days before leaving office, a final push in his effort to keep advanced technologies out of hands of China and Russia.

The US wants to curb the sale of AI chips used in data centres on both a country and company basis, with the goal of concentrating AI development in friendly nations and getting businesses around the world to align with American standards, according to people familiar with the matter.

The result would be an expansion of semiconductor trade restrictions to most of the world — an attempt to control the spread of AI technology at a time of soaring demand. The regulations, which could be issued as soon as Friday, would create three tiers of chip curbs, said the people, who asked not to be identified because the discussions are private.

At the top level, a small number of US allies would maintain essentially unmitigated access to American chips. A group of adversaries, meanwhile, would be effectively blocked from importing the semiconductors. And the vast majority of the world would face limits on the total computing power that can go to one country.

Companies headquartered in nations in that last group would be able to bypass their national limits — and get their own, significantly higher caps — by agreeing to a set of US government security requirements and human rights standards, according to the people. That type of designation — called a validated end user, or VEU — aims to create a set of trusted entities that develop and deploy AI in secure environments around the world.

Shares of Nvidia, the leading maker of AI chips, dipped more than 1% in late trading after Bloomberg reported on the plan. They had been up 4.3% this year through the close, following stratospheric gains in 2023 and 2024 that turned the company into the world’s most valuable chipmaker.

Advanced Micro Devices Inc, Nvidia’s biggest challenger in AI processors, dropped less than 1% in extended trading.

Nvidia objected to the proposal in a statement. “A last-minute rule restricting exports to most of the world would be a major shift in policy that would not reduce the risk of misuse but would threaten economic growth and US leadership,” Nvidia said. “The worldwide interest in accelerated computing for everyday applications is a tremendous opportunity for the US to cultivate, promoting the economy and adding US jobs.”

A representative of the White House’s National Security Council declined to comment. The Commerce Department’s Bureau of Industry and Security, which is in charge of chip export controls, didn’t immediately respond to a request for comment.

The measures build on years of curbs that already limit the ability of American chipmakers like Nvidia and AMD to sell advanced processors in China and Russia. The US also has sought to prevent adversary nations from accessing cutting-edge technology through intermediaries in places like the Middle East and Southeast Asia. The latest draft rules are part of that global effort.

The rules follow months of debate over how quickly and broadly to deploy US chips to global data centres. Because American chips far outperform Chinese ones at AI tasks, companies and entire countries have indicated that they’re willing to jump through hoops to gain access to US technology. That gives the US a unique role as a gatekeeper — and a potentially significant amount of leverage to shape global AI development.

The US has “a serious once-in-a-generation moment to leverage US AI technology,” the top Democrat and Republican on the House China Select Committee wrote last week in a letter to Commerce Secretary Gina Raimondo. “Demand for US AI technology is an opportunity to pry both companies and countries out of Beijing’s orbit.”

The first tier established in the new rules includes the US and 18 allies, such as Germany, the Netherlands, Japan, South Korea and Taiwan, according to people familiar with the matter.

Companies can freely deploy computing power in those places, and firms headquartered there can apply for blanket US government permission to ship chips to data centres in most other parts of the world. That’s provided that no more than a quarter of their total computing power is located outside of Tier 1 countries, and no more than 7% in any one Tier 2 country. Companies would also have to abide by US government security requirements.

Additionally, US-headquartered companies that apply for that type of permission — a so-called universal VEU designation — have to keep at least half of their total computing power on American soil, people familiar with the matter said. The broader goal of these regulations is ensuring that the US and allied countries always have more computing power than the rest of the world.

Restrictive tiers

The vast majority of countries fall into the second tier of restrictions, which establishes maximum levels of computing power that can go to any one nation — equivalent to about 50,000 graphic processing units, or GPUs, from 2025 to 2027, the people said. But individual companies can access significantly higher limits — that grow over time — if they apply for VEU status in each country where they wish to build data centres.

Getting that approval requires a demonstrated track record of meeting US government security and human rights standards, or at least a credible plan for doing so. Security requirements span physical, cyber and personnel concerns. If companies obtain national VEU status, their chip imports won’t count against the maximum totals for that country — a measure to encourage firms to work with the US government and adopt American AI standards.

The third, most restrictive tier affects China, Macau and all countries for which the US maintains an arms embargo — about two dozen nations in total, according to the people. Shipments to data centres in those places are broadly prohibited.

Like Nvidia, the Semiconductor Industry Association trade group opposes the move.

“A policy change of this scope and significance should not be rushed out the door during a period of presidential transition and without meaningful input from industry,” the association said in a statement. “Too much is at stake here to circumvent a deliberative process. Our country needs to get this right so we can compete and win globally.”

Model weights

In addition to the semiconductor controls, the new rules also limit the export of closed AI model weights, which are the numerical parameters that software uses to process data and make predictions or decisions.

Companies would be prohibited from hosting powerful closed model weights in Tier 3 countries, like China and Russia, and would have to abide by security standards to host those weights in Tier 2 countries. That means the controls on model weights don’t apply to companies that obtain universal VEU status, one of the people said.

Open weight models — which allow the public to access underlying code — aren’t affected by the rules, nor are closed models that are less powerful than an already-available open model. But if an AI company wants to fine-tune a general-purpose open weight model for a specific purpose, and that process uses a significant amount of computing power, they would need to apply for a US government license to do so in a Tier 2 country.’ - unquote

This latest round of proposed AI chip restriction may have impacts on AI chip makers like Nvidia and AMD, as the proposed bill will plug more leakages in Tier 2 countries.

As I read from the details outlined in the article above, I do not think this latest round of AI chip restriction to have any impact on YTL Power getting the required Nvidia chips for its AI data centre development in Malaysia. This is because all of the clients secured so far by YTL Power for its AI data centres are all US companies or based in a Tier 1 country - Nvidia, a US hyperscaler and an MNC (this MNC may be just leasing a colocation data centre that does not require AI chips).

These individual US companies may apply for VEU status in Malaysia and can assess significantly higher limits. Hence, I do not expect the progress of YTLP’s AI data centre development in Kulai to face any hurdle from this latest round of restriction.

To the contrary, the latest round of restriction may be good for YTL Power as other US hyperscalers such as Google, AWS and Oracle may lease its AI data centres in Kulai, rather than investing in other Tier 2 or Tier 3 countries. YTL Power has proven that it can assess to the latest Nvidia GPUs which are on the way for delivery to Malaysia in next few weeks.

This latest round of restrictions on AI chips export will hit other smaller data centres in Malaysia, which have recently bought parcels of land in Johor from property developers like Crescendo but have yet to secure AI chips. Some of these data centres are meant for China companies to get assess to Nvidia AI chips, trying to bypass US sanctions.

The selling on YTL Power yesterday was likely done by some local funds and retailers who were afraid of adverse impacts on YTLP’s AI data centre development by the latest round of US restriction on AI chips export. Foreign funds, on the other hand, were more well-informed of the latest situation and took the opportunity to buy in more YTL Power shares yesterday amidst the ‘panicked selling’ by local funds.

HLIB data shows that foreign funds net bought RM19 million worth of YTL Power shares yesterday, while local funds net sold RM23m of YTLP shares. Local funds also net sold RM23m of Nationgate shares and RM20m of Gamuda shares yesterday, both companies are linked to data centre development in Malaysia. Foreign funds were net buyer of Gamuda shares yesterday.

Foreign funds were also net buyers of YTL Power shares the days before with net purchase of RM6m on Wednesday and RM21m on Tuesday.