Modular data centres: out of the box
Beijing's order this week to unwind Meta's $2bn purchase of Manus has produced predictable gloom about Chinese AI exits. The wrong story. The trade is not who buys Chinese software. It is who builds the boxes that all software runs on.
Forecasts of US data centre capex run to $650bn for 2026 alone. About half of that nominal pipeline will not be built on time. The binding constraint is not capital but the unglamorous metalwork of grey space: high-voltage transformers with five-year lead times, switchgear, batteries, diesel gensets. The US imported more than 8,000 high-power transformers from China in the first ten months of 2025, up from fewer than 1,500 in all of 2022. Reshoring rhetoric has not produced reshored kit.
Enter the modular prefab vendors. Companies such as Shanghai-based EPG manufacture the entire grey-space stack โ transformers, UPS, batteries, cooling, fire suppression, gensets โ as containerised units, shipped from factories in Malaysia. Country-of-origin rules treat substantially-transformed Malaysian product as Malaysian. That sidesteps Section 301 tariffs, mostly sidesteps the Section 889 covered list, and entirely sidesteps reverse CFIUS. Schneider and Vertiv, the western incumbents, are structurally bound to hyperscaler economics and price points 30-40 per cent higher.
The addressable market is not Northern Virginia. It is Riyadh, Johor, Sรฃo Paulo, Jakarta, Lagos. Sovereign AI programmes across two dozen middle powers, the inference edge buildout, captive enterprise deployments, off-grid renewable sites โ taken together, a five-year market plausibly larger than the contested American core, and growing faster. The trade is the long tail.
Risks exist. Malaysia transshipment is now being audited; bills of materials still lean Chinese; battery sourcing courts UFLPA scrutiny; a future Washington may simply pierce the corporate veil. None of which is currently priced in. Investors fixated on hyperscalers are watching the wrong box.