JPMorgan has cautioned that Malaysian stocks linked to the data center investment theme may face additional downside risks, prompting downgrades for Sunway Construction Group Bhd and Gamuda Bhd. The firm noted that while construction stocks have seen declines, their premium valuations have not fully adjusted. Furthermore, JPMorgan estimates that tightened US chip export restrictions could potentially impact up to two-thirds of Malaysia's planned four-gigawatt data center capacity.

JPMorgan has flagged escalating risks for Malaysia's data center sector, prompting it to downgrade Sunway Construction to 'underweight' from 'neutral' and reduce its target price to RM2.50 from RM4.10. Sunway Construction's shares continued their downward trajectory on Friday, having already dropped 23% in the first two weeks of 2025. This decline follows the US imposing stricter controls on advanced computing chip exports, critical for data centers. The stock had more than doubled in 2024 due to significant project wins in the data center sector. However, with data center projects comprising over half of its outstanding order book and 70% of last year's project wins, JPMorgan believes the risks of slowing project tenders are not yet fully reflected in its valuation. According to the research house, every RM1 billion in data center project wins impacts the company's earnings by 16%.

Gamuda's Diversified Focus
JPMorgan also downgraded Gamuda to a 'neutral' rating from 'overweight,' while reducing its target price to RM4.00 from RM4.26, citing an 8% downside to consensus earnings forecasts. Despite this, JPMorgan acknowledged Gamuda's diversified portfolio as a mitigating factor. Data center projects accounted for only 7% of Gamuda's order book, with the company also pursuing tenders for rail and renewable energy projects both domestically and internationally. "Our neutral stance is based on Gamuda's ability to secure projects in other areas, including renewable energy in Australia, rail infrastructure, and its new venture into sovereign cloud solutions," JPMorgan stated.

Gamuda, Malaysia's largest construction firm, has seen its market value decline by about 10% this year after doubling in 2024. Its shares also fell on Friday. JPMorgan's downgrade diverged from broader market sentiment, as Gamuda remains a popular pick with 18 'buy' and only three 'hold' calls despite the latest adjustment.