ASEAN’s race to become a new AI hub is accelerating, as Malaysia, Singapore and Thailand pour money into semiconductors, data centres and AI adoption, but the boom is also exposing the region to mounting risks — from job displacement and widening inequality to energy shortages, water stress and fears of a technology bubble.

Across the region, technology companies are moving rapidly to develop artificial intelligence that can perform tasks previously done by humans.

One example is Malaysia’s Zetrix AI, which aims to deliver an intelligent AI agent called “Avatar” to 1 million users across ASEAN by the end of 2026. The company says the AI agent will be able to handle tasks ranging from filling out documents to serving as an assistant for influencers by automatically replying to thousands of messages.

A new generation of entrepreneurs is betting that AI will become fully mainstream within the next five years, or by 2031. But as governments and companies race to build the next layer of digital infrastructure, economists and labour experts warn that the costs may fall unevenly across society.

ASEAN economies compete for AI infrastructure

ASEAN’s major economies are competing to position themselves as regional centres for AI production and infrastructure, a field still dominated globally by the United States and China.

Malaysia has emerged as one of the region’s strongest players in the semiconductor supply chain. In 2025, the country’s semiconductor exports — a key component for AI chips — were valued at 465 billion ringgit, or about US$117 billion, accounting for 25% of total exports.

Malaysia also has more than 140 data centre projects either completed or under construction, with combined investment of more than US$6 billion.

Singapore, meanwhile, has signed agreements with major technology companies, including Google and OpenAI, the developer of ChatGPT, worth at least US$234 million, as it seeks to reinforce its position as the region’s technology hub.

Thailand has also moved to accelerate AI adoption. In August 2025, the country approved a US$774-million budget plan to integrate AI into key sectors, including education and agriculture.

Data centres put pressure on energy and water

Behind the enthusiasm for AI investment, ASEAN is facing a structural environmental challenge.

Data centres and chipmaking plants, from Penang to Ho Chi Minh City, require vast amounts of electricity. Much of that demand is expected to come from clean or zero-carbon energy, which the region still does not produce in sufficient supply.

These facilities also require large volumes of water for cooling. That raises concerns that AI-related infrastructure could worsen drought pressure linked to climate change, especially in areas already facing water stress.

The environmental risks do not stop there. The production of AI processors also depends on rare earth elements, increasing concerns over mining activity and the long-term ecological damage it can cause.

Workers face growing displacement risk

The labour market is another major pressure point.

A report by Barclays says AI has already begun replacing human work, even though the broader macroeconomic impact remains limited because the technology is still in its early stages.

The most vulnerable group may be ASEAN’s gig economy workers, who number more than 40 million across the region. Many of them work without strong welfare protection, health insurance or pension coverage.

One example is Singapore-based Grab’s plan to test AI-controlled driverless taxis in Singapore by 2026. If the technology expands, ride-hailing drivers could face job losses without adequate safety nets.

The threat is not limited to lower-skilled work. White-collar jobs, especially in finance and back-office operations, are also being reshaped by AI.

Standard Chartered has announced plans to use AI to replace more than 7,000 jobs at service centres in India, Malaysia and Poland by 2030. HSBC has announced plans to cut as many as 20,000 positions as it shifts towards AI systems. Japan’s Mizuho Bank is also preparing to use AI to replace more than 5,000 administrative and document-management jobs over the next decade.

AI could widen ASEAN’s inequality gap

The economic benefits of AI may not be evenly distributed.

The International Labour Organization has reported that labour’s share of income from global output fell by 0.6 percentage points to 52.4% over the decade to 2024. That trend suggests that gains from technology are flowing more towards owners of capital and assets than to workers.

Barclays also warns that AI may not always cause direct unemployment, but could pressure workers with no alternative income into accepting heavier workloads for lower pay.

The World Bank has urged governments in the region to move quickly by expanding AI skills training, upgrading education systems and introducing policies to protect vulnerable workers.

For ASEAN, the risk is that AI may boost productivity and attract foreign investment while also deepening the divide between highly skilled workers and those in insecure or low-paid jobs.

SMEs risk being left behind

Large corporations are moving quickly into AI, but small and medium-sized enterprises may struggle to keep up.

A McKinsey & Company survey indicates that almost two-thirds of large companies in ASEAN have already begun adopting AI at scale.

For SMEs, however, the picture is very different. Many smaller businesses face high costs for AI systems, cloud services, data infrastructure and skilled staff. This creates a risk that AI could strengthen large companies while leaving smaller firms behind.

That would be especially significant for ASEAN, where SMEs form the backbone of the regional economy and provide a large share of employment.

Energy shocks may accelerate AI adoption

The report also warns that global energy instability could push companies to adopt AI even faster.

Geopolitical tensions and disruptions to energy supply can drive up inflation and operating costs. In that environment, some executives may turn to AI to reduce labour costs and protect profit margins.

A senior Microsoft executive in Malaysia has argued that such pressures are unlikely to slow AI investment. Instead, companies facing tighter margins may rely more heavily on automation.

That view is echoed by Taiwan’s Delta Electronics, which says the shift towards agentic AI in Industry 5.0 has become unstoppable. Agentic AI refers to AI systems that can act more independently, make decisions and complete complex tasks with less human direction.

Investors warn of possible AI bubble

The AI boom is also raising concerns in financial markets.

The combined market value of the “Magnificent Seven” technology giants — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla — has surged past US$23 trillion. That is equivalent to about one-third of the S&P 500 index and 37 times the value of Indonesia’s stock market.

Michael Burry, the investor known for predicting the 2008 subprime crisis, has warned that the current rush into technology stocks resembles the final months before the dot-com bubble burst in 1999-2000.

That crash wiped more than US$5 trillion from the Nasdaq index.

For investors, the key question is whether AI will generate enough real economic returns to justify current valuations — or whether markets have moved too far ahead of the technology’s practical impact.

ASEAN faces a difficult balancing act

For ASEAN governments, the AI race offers a major economic opportunity. It could attract investment, create high-value industries, strengthen digital infrastructure and reduce dependence on traditional growth engines.

But the risks are equally serious.

AI could displace workers faster than governments can retrain them. It could widen inequality between skilled and unskilled labour. It could raise costs for SMEs, strain energy and water systems, and leave the region exposed if the global AI investment boom turns into a market correction.

The central challenge for ASEAN is no longer whether the region should embrace AI. That shift is already under way.

The harder question is whether governments can build the policies, skills systems, labour protections and environmental safeguards needed to ensure that the AI boom benefits more than just large corporations and technology investors.