Singapore Probe into Nvidia Chip Smuggling Shakes Malaysia’s Data Centre Boom

A high-stakes investigation in Singapore into the alleged smuggling of Nvidia chips has sent ripples through Malaysia’s rapidly growing data centre industry, raising questions about the integrity of regional supply chains and the enforcement of US export controls on advanced technology. The probe, which centres on chips destined for artificial intelligence (AI) applications being fraudulently rerouted through Malaysia to third countries, has already triggered market turmoil and prompted urgent government action in Kuala Lumpur.

A Regional Tech Scandal Unfolds

Singapore’s Home Affairs and Law Minister K. Shanmugam announced on 3 March 2025 that police were investigating whether servers from US companies Dell and Supermicro, containing Nvidia’s coveted AI chips, had been shipped to Singapore-based firms before being exported to Malaysia under false pretences. The implication is serious: these chips, critical to AI development and subject to strict US export controls, may have ended up in unauthorised destinations, potentially violating international sanctions.

The fallout was immediate. Within 15 minutes of the news breaking, shares in Malaysian hardware manufacturer NationGate plummeted by 30%, erasing RM1.3 billion (S$391 million) from its market value. Although the company, which assembles servers for Dell and Supermicro on behalf of Nvidia cloud partners, later clarified it had no dealings with the implicated firms, the damage to investor confidence was evident. By the following day, NationGate recovered only a quarter of its losses on the local bourse.

The investigation has so far led to charges against two Singaporeans and one Chinese national for fraud on 27 February. Among them is Alan Wei Zhaolun, a Singaporean linked to several tech firms, including Aperia Cloud Services, Nvidia’s first cloud partner in Asean. Industry sources revealed to The Straits Times that Aperia Cloud is a key customer for a 15MW data centre in Bukit Jalil, a Kuala Lumpur suburb, developed by property firm Exsim. With Aperia Cloud committed to offtaking over 10MW of capacity—a deal critical to securing financing for such projects—Exsim now faces the risk of terminating the agreement and scrambling for new partners if the allegations are substantiated.

Malaysia’s Data Centre Boom at Risk

Malaysia has emerged as a regional hub for data centres since 2023, fuelled by RM99 billion in investments, much of it tied to AI infrastructure. An additional RM149 billion is reportedly in the pipeline, according to the Malaysia Digital Economy Corporation. Global tech giants like Amazon, Google, and Microsoft have established operations in the country, drawn by its strategic location, relatively low costs, and government incentives. However, the Nvidia chip probe threatens to tarnish this success story.

On 4 March, Malaysia’s Investment, Trade and Industry Minister Tengku Zafrul Aziz vowed “necessary action” if claims of chip smuggling were proven true. Speaking on CNBC’s Squawk Box Asia, he stressed that there was no evidence to suggest data centre operators in Malaysia were misusing chips. “They will be held accountable if they are not using [the chips] for themselves,” he said. Later that day, his ministry confirmed it was working with police and Customs to investigate potential breaches of Malaysian law related to the shipment of US-sanctioned AI chips from Singapore.

The government’s swift response reflects the high stakes involved. Malaysia’s ambition to become a digital economy powerhouse hinges on maintaining trust with international partners, particularly the US, which has imposed tight restrictions on semiconductor exports to prevent advanced technology from reaching certain countries, notably China. A Reuters report in January 2025 cited sources claiming that organised AI chip smuggling to China had been traced through countries including Malaysia, Singapore, and the United Arab Emirates, adding further pressure on regional governments to crack down.

Geopolitical Dimensions and US Pressure

The Singapore probe is not an isolated incident but part of a broader geopolitical chess game over control of cutting-edge technology. The US began scrutinising potential circumvention of its export controls after Chinese AI firm DeepSeek launched a free AI tool in January 2025, a move that reportedly wiped US$1 trillion (S$1.34 trillion) off the value of American tech stocks despite existing restrictions. US lawmakers have since urged National Security Adviser Mike Waltz to impose strict licensing requirements on countries unwilling to curb illicit shipments, with Singapore explicitly named in a January letter.

For Malaysia, the implications are twofold. Economically, any perception of lax oversight could deter foreign investment in its data centre sector, a key pillar of its digital transformation agenda. Politically, Kuala Lumpur must navigate a delicate balance between maintaining strong ties with the US and managing its relationships with regional partners like Singapore and China. The government’s pledge to collaborate with both the US and Singapore signals an intent to address the issue transparently, but the outcome of the investigation will be critical in shaping international perceptions of Malaysia’s regulatory environment.

Industry Impacts and Speculative Risks

The immediate impact on companies like NationGate and Exsim underscores the vulnerability of Malaysia’s tech ecosystem to external shocks. NationGate’s dramatic share price drop, even if partially reversed, highlights how quickly market sentiment can shift in the face of uncertainty. For Exsim, the potential loss of Aperia Cloud as an offtake partner could delay or derail its data centre project in Bukit Jalil, with ripple effects on financing and future expansion plans. As one industry source told The Straits Times anonymously, Exsim may need to “find other offtakers, perhaps asking customers of its next phase to commit to additional capacity”—a challenging prospect in a competitive market.

Speculatively, if the allegations of chip smuggling are confirmed, the fallout could extend beyond individual firms to the broader data centre industry in Malaysia. Investors may demand greater transparency and due diligence before committing to projects, while global tech firms could reassess their operations in the region. However, it must be emphasised that no evidence currently confirms such widespread involvement, and these scenarios remain hypothetical. The Malaysian government’s ongoing discussions with data centre operators aim to ensure that servers and chips are reaching their intended recipients, a process that will likely shape the industry’s trajectory in the coming months.

A Test for Regional Cooperation

The Nvidia chip probe also tests the strength of regional cooperation in South East Asia, particularly between Singapore and Malaysia. Both countries have a shared interest in maintaining the integrity of their tech industries and preventing the region from becoming a conduit for illicit trade. Malaysia’s commitment to working closely with Singapore and the US to address the issue is a positive step, but effective collaboration will require robust information-sharing and coordinated enforcement mechanisms—areas where historical tensions over jurisdiction and economic competition could pose challenges.

Moreover, the investigation raises broader questions about the governance of advanced technology in a region increasingly central to global supply chains. As AI and semiconductor technologies become ever more critical to economic and national security, governments in South East Asia will need to develop clearer frameworks for compliance with international regulations while fostering innovation. For now, the focus remains on the outcome of Singapore’s probe and Malaysia’s parallel investigations, which together will determine whether this scandal becomes a mere footnote or a turning point for the region’s tech ambitions.

Navigating a High-Tech Tightrope

Singapore’s investigation into the alleged smuggling of Nvidia chips has cast a shadow over Malaysia’s data centre boom, exposing vulnerabilities in regional supply chains and the complexities of enforcing global export controls. With billions of dollars in investments and the country’s digital economy aspirations at stake, Kuala Lumpur’s response—both in terms of domestic enforcement and international cooperation—will be closely watched. For now, the industry holds its breath, awaiting clarity on whether this probe will disrupt Malaysia’s trajectory as a tech hub or serve as a catalyst for stronger oversight and resilience.

As the investigations unfold, one thing is clear: in the high-stakes world of AI technology, even the smallest misstep can have outsized consequences. Malaysia, Singapore, and their partners must navigate this tightrope with precision to safeguard both economic opportunity and geopolitical stability.