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Southeast Asia’s Digital Economy Sees Slower Private Funding Growth Despite AI Boom

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Private funding for Southeast Asia’s digital economy rose 15% year-on-year to $7.7 billion in the 12 months to June 2025, lagging the global private investment growth rate of 25%, according to a new report by Google, Temasek Holdings, and Bain & Company.

While the figure marks an improvement from 2024, it remains about 70% below the region’s 2021 record high of $27 billion, reflecting a slower recovery from the post-pandemic investment cooldown.

The report found that funding is increasingly concentrated in late-stage rounds, with the share of seed-to-Series B deals dropping from around 30% to 20% over the past year.

This year’s edition expanded its coverage to include Brunei, Cambodia, Laos, and Myanmar, alongside Indonesia, Thailand, Vietnam, Singapore, Malaysia, and the Philippines — a region of nearly 700 million people and one of the world’s fastest-growing internet markets, driven by a young population and rising smartphone use.

Despite the funding slowdown, AI startups remain a bright spot, attracting 32% of all private capital in the region during the first half of 2025 — up slightly from 30% in the second half of 2024. Over 680 AI startups secured more than $2.3 billion, with Singapore hosting more than 495 of them.

The report also highlighted rapid data center expansion, as countries rush to build infrastructure for the AI boom. Data center capacity in Southeast Asia is expected to grow 2.8 times, surpassing the 2.2 times growth forecast for the wider Asia-Pacific.

Malaysia leads this expansion, with 2,415 MW of new capacity planned — more than half the region’s total 4,620 MW — attracting major investments from Microsoft, Amazon, Google, Tencent, Huawei, and Alibaba.

Meanwhile, TikTok plans to invest $4 billion in data hosting facilities in Thailand, while Google and Amazon are each investing $1 billion and $5 billion respectively in the country, underscoring the growing competition in Southeast Asia’s digital infrastructure landscape.

Malaysia to discuss semiconductor tariffs with U.S. at ASEAN summit next week

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Malaysia plans to hold talks with U.S. Commerce Secretary Howard Lutnick next week on sectoral tariffs, including those on semiconductors, during the ASEAN Leaders Summit in Kuala Lumpur, state media reported on Wednesday.

The discussions come amid rising trade tensions after President Donald Trump’s administration imposed a 19% tariff on Malaysian exports to the U.S. in August. While semiconductors are currently exempt, they remain under review as part of a U.S. national security probe.

Malaysia is the world’s sixth-largest semiconductor exporter, and officials have warned that removing exemptions on chip exports could hurt competitiveness and disrupt global supply chains. Trade Minister Tengku Zafrul Aziz said he expects to finalize tariff negotiations with Washington during the summit, scheduled for October 26–28.

“I will hold discussions with Lutnick. He will also be attending the ASEAN Leaders Summit next week,” Tengku Zafrul told state news agency Bernama, adding that a final tariff agreement could be signed during the event.

The minister said Malaysia’s agriculture, industrial, and manufacturing sectors, as well as those engaged in U.S. trade and investment, are likely to benefit from the upcoming agreement. Several other ASEAN members are also expected to sign bilateral trade deals with Washington at the summit.

Under current U.S. policy, most Southeast Asian nations face tariffs between 19% and 20%, with Singapore receiving a 10% rate, while Laos and Myanmar have been hit with 40% tariffs.

Malaysia warns U.S. chip tariff changes could disrupt global supply chains

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Malaysia has warned that any move by the United States to remove tariff exemptions on its semiconductor exports could hurt competitiveness and strain global supply chains, according to an economic outlook report released with the country’s 2026 budget.

The warning follows President Donald Trump’s decision in August to impose a 19% tariff on Malaysian exports to the U.S., with semiconductors temporarily exempt pending a national security review. Trump has also proposed a 100% tariff on imported chips, excluding firms with existing or planned U.S. manufacturing facilities.

“Any removal of the semiconductor exemptions could result in repercussions, reduce competitiveness and strain sectors that are closely integrated with U.S. supply chains,” Malaysia’s government said. The Southeast Asian nation is the world’s sixth-largest semiconductor exporter and a crucial link in global chip assembly and testing.

The report estimates that the tariffs could reduce Malaysia’s GDP growth by 0.76 percentage points, while trade volumes are expected to contract next year. The government had already lowered its 2025 growth forecast to between 4% and 4.8%, from a previous 4.5%–5.5% range, citing escalating trade tensions. For 2026, it expects growth between 4% and 4.5%.

Economists say the tariff uncertainty threatens to disrupt Asia’s semiconductor supply network, which supports major American chipmakers like Intel and Texas Instruments that rely on Malaysia for downstream production.