Gamuda entry into AI space offers rich potential

12 Dec 2024 | The Star

Kenanga Research called it a “surprise” move and said the investment risk in these ventures is minimal due to the small capital outlay.

Petaling Jaya: Gamuda Bhd ’s recent venture into the cloud and artificial intelligence (AI) space is being viewed as a positive move.

Earlier this week, the group announced two moves by its subsidiary Gamuda Technologies Sdn Bhd, with the first being a partnership with Dagang Nexchange Bhd (Dnex) for a 50:50 joint venture to be the sole provider for Google Distributed Cloud air-gapped services (GDC Services) to the government and clients in Malaysia.

Additionally, Gamuda will also be taking up a 20% equity stake in Cloud Space Sdn Bhd (Cloud Space) with an investment worth up to RM18mil.

Cloud Space is a Google Cloud premier partner, offering services for Google Cloud, Google Workspace, Chrome Enterprise and Google for Education, to the government and private sector in Malaysia.

Kenanga Research called it a “surprise” move and said the investment risk in these ventures is minimal due to the small capital outlay, with the potential for significant returns.

“If successful, this could establish cloud and AI as Gamuda’s third core business after construction and property development. With this expansion, Gamuda’s scope now extends from constructing data centres to providing cloud and AI services. We expect further details during their upcoming results briefing,” the research house said in a report yesterday.

Meanwhile, RHB Research said, while earnings accretion from the investment in Cloud Space is minimal, it envisaged that better yielding opportunities could arise from the condition that Gamuda has the right to first refusal to form equity partnerships with Cloud Space for any new large-scale cloud projects, with Gamuda having a minimum 50% stake.

The research house noted that more importantly, there is a potential RM36bil market for Gamuda to tap into via cloud and AI capabilities.

RHB Research projects that Gamuda’s move to enhance its AI capabilities may lead to the creation of a new business segment for digital infrastructure.

“Such a plan would bode well with the government’s RM10mil allocation under Budget 2025 for the National Artificial Intelligence Office, which is tasked to drive AI adoption.

“The icing on the cake would be if Gamuda is selected to participate in other upcoming digital-infrastructure projects by Google, such as data centres,” the research house said.

CIMB Research, on the other hand, viewed Gamuda’s latest announcements positively from a strategic standpoint, as it trail-blazed its foray into digital infrastructure.

The research house said it believes the group’s collaboration with Dnex will help Gamuda expedite Gamuda’s reach in delivering generative AI solutions, specifically GDC services for government agencies that require a sovereign cloud platform.

“At the same time, Gamuda would be able to penetrate the private cloud market via Cloud Space – a top-tier Google Cloud Premier Partner.

“In terms of talent pool, Gamuda would be able to leverage its in-house Gamuda AI Academy to deliver best-in-class services for digital infrastructure,” CIMB Research said.

RHB Research and CIMB Research have “buy” calls on Gamuda, with a target price of RM11.67 and RM11, respectively.

Kenanga Research has an “outperform” call on Gamuda with a target price of RM10.80.