The NextDC Ltd (ASX: NXT) share price surged 8% earlier this week on the news that it secured a contract win for its Kuala Lumpur data centre.
NextDC's data centre in the Malaysian capital, KL1, won't go live until early 2026.
But the company's announcement that it had already secured customers for 15% of the data centre's capacity was welcomed by investors.
NextDC is betting big on South East Asia, particularly Malaysia, where KL1 is planned to serve as a foundation for its Asian expansion.
The company is set to invest more than $1 billion in Malaysia over the decade as it attempts to carve out a slice of the region's booming data centre market.
As such, investors jumped on the news that showed a promising sign of NextDC's Asian expansion efforts going to plan.
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"Unprecedented hyper-growth"
South East Asia's data centre market is one of the fastest-growing in the world.
The region's data centre market attracted $15 billion in investments in 2023 and is projected to reach $26 billion by 2029.
That represents a compound annual growth rate approaching 10%.
NextDC CEO Craig Scroggie has made his Asian ambitions clear.
"NextDC is in a phase of unprecedented hyper-growth across the Asia-Pacific region, with 17 world-class data centres fully operational and another 9 sites actively under development, including new sites in Asia (Kuala Lumpur, KL1) and Auckland (AK1) and new planned developments including Japan, Thailand and a second data centre development site in Johor, Malaysia."
NextDC is in the planning phase of developing its site in Tokyo.
The company also received approval from Thailand's Board of Investment to build a new data centre in Bangkok back in FY24.
Risks and rewards
While the opportunity for NextDC in South East Asia is apparent, so too are the risks.
Competition in the region's data centre market is heating up.
Numerous local and international companies are scrambling to secure sites and construct data centres to meet the region's rising demand.
They face considerable challenges, such as geopolitical issues, regulatory constraints, and difficulties securing reliable power and water supplies, to name a few.
But if NextDC can succeed in South East Asia, the rewards will be great.
Foolish Takeaway
The company is right to look beyond Australia to Asia, where there is far greater opportunity for data centre operators.
NextDC's recent Malaysian contract win may not represent the company's biggest deal.
But it is a significant step forward in NextDC's plans to expand beyond Australia and shows that it is on the right track to achieving its goals.
