Adoption of AI is accelerating across Southeast Asia, with Singapore leading in overall adoption and Malaysia emerging as one of the region’s fastest-growing markets, according to a new study by Amazon Web Services.

Much of this growth is being propelled by the startup community.

The study, which polled 1,000 members of the public and 1,000 business in each of the 13 markets studied, found that while large enterprises remain the largest adopters of AI, startups are actually the true leaders in AI innovation, positioning Malaysia’s dynamic startup sector as a key engine of AI-driven competitiveness in the region.

Despite this growth, the study also found that most businesses are still at an early stage of AI implementation, focusing on efficiency gains and automation rather than full operational transformation. The vast majority of organizations are still lacking a comprehensive AI strategy, with the skills gap identified as the biggest barrier to AI adoption, mirroring global trends.

AI adoption higher in Singapore

Singapore leads Southeast Asia in AI adoption, with nearly half (48%) of Singaporean businesses now leveraging AI, up from 40% last year. In comparison, 32% of businesses in Thailand have adopted AI, 28% in Indonesia, 27% in Malaysia, 21% in the Philippines, and 18% in Vietnam, showcasing Singapore’s leadership in AI adoption.

In the past year alone, 27,000 businesses in the city-state began using AI, equivalent to over three every hour on average. This brings the total number of AI-adopting businesses from around 143,000 in 2024 to 170,000 in 2025.

Singapore’s strong AI adoption is supported by high uptake of cloud technology, with 53% of businesses using the cloud. Cloud computing represents a foundational capability in digital transformation, enabling broader and faster scaling of AI.

Singaporean businesses report larger gains

Businesses in Singapore are also witnessing larger gains from their use of AI. Among AI adopters, 82% are reporting increased revenue, at an average increase of 19%, and 90% are seeing significant productivity improvements.

These gains are significantly higher than those in Malaysia, where 65% of AI-adopting businesses are seeing an increase in revenue by also an average increase of 19%, and 72% reporting significant productivity improvements.

This may be explained by differences in digital maturity, infrastructure quality, and how deeply AI is integrated into local businesses. Firms in Singapore typically have greater access to more advanced resources, enabling them to deploy AI across more strategic, high-impact areas beyond basic applications.

As a result, Singapore businesses are now redirecting their focus toward strategic value creation and innovation-centric AI efforts. 52% are looking to use AI to enhance customer service and relationships, 46% to develop new products and services, and 42% are investing in employee training.

Higher maturity and advanced sectors drive adoption

Singapore also boasts the highest level of AI maturity in the region. 17% of Singaporean businesses have reached the most transformative stage of AI integration, where they are now leveraging the technology for advanced purposes, combining multiple AI tools for complex tasks, or developing custom AI systems for operational transformation.

This compares with 10% in Malaysia, Indonesia and Thailand, 9% in Vietnam, and 8% in the Philippines, underscoring Singapore’s leadership in AI but also highlighting the widening gap in AI readiness across Southeast Asia.

Within Singapore, the financial services industry leads AI adoption, reporting a 71% penetration rate, followed by IT and technology, including software developers, data analytics firms, cloud service providers, and digital startups at 70%, and healthcare at 63%.

Looking ahead, optimism remains strong, with 85% of AI adopters expecting the technology to increase their growth in the next year, and 89% anticipating cost savings.

Faster adoption in Malaysia

Compared to Singapore, AI adoption in Malaysia is lagging, with 27% of businesses using AI in 2025, versus 48% in Singapore. However, Malaysia is experiencing faster growth in AI uptake.

In 2024, 630,0002 new businesses implemented AI technologies, a pace of more than one new AI adoption every minute throughout the year. This brings the total number of AI-adopting businesses from 1.77 million in 2024 to 2.4 million in 2025, representing a 35% growth in overall AI adoption, and surpassing Singapore’s 20% growth rate.

In Malaysia, startups are emerging as leaders in AI innovation. Almost half (48%) of startups are leveraging AI in some way throughout their business, 27% have AI at the core of their business proposition and operations, and 26% apply AI for its most advanced uses.

This ambition is matched by optimism. 83% of domestic startups believe AI will transform their industry within the next five years, positioning Malaysia’s fast-moving startup sector as a key engine of AI innovation and competitiveness in the region.

AI adoption surges but remains basic

While AI adoption in Malaysia is rising, most organizations remain at an early stage of AI implementation.

73% of local businesses are still primarily focused on basic uses of AI and incremental gains, concentrating on operational efficiency and process streamlining rather than innovation. These businesses are mainly using publicly available chatbots for routine tasks such as scheduling assistants, and are purchasing ready-made AI solutions for data analysis, financial analysis or cybersecurity.

Nevertheless, 17% of organizations in Malaysia have advanced to the intermediate stage of AI adoption. This stage involves integrating AI across various business functions and products for improved efficiency and enhanced customer experience with tools like embedded recommendation and personalized features.

Finally, only 10% of Malaysian businesses have reached the most advanced stage of AI integration, where the technology is used for operational transformation and more complex tasks.

Large enterprises represent great untapped opportunity

In both Malaysia and Singapore, large enterprises are leading AI adoption but are not yet leveraging the technology’s most advanced applications.

In Malaysia, 44% of large enterprises are using AI technologies, significantly greater than the national average of 27%. However, the vast majority (74%) are using them for incremental gains. Singapore is seeing a similar pattern where 62% of large enterprises have adopted AI, higher than the national average of 48%, but where 60% are still at a basic level of adoption.

Furthermore, only a minority of large companies in Singapore (30%) and Malaysia (12%) have a comprehensive AI strategy outlining how their organization will leverage AI. This suggests that most large firms in the countries are still in the experimentation phase, deploying AI across a few use cases rather than embedding the technology across the value chain. This represents an untapped opportunity for AI providers and stakeholders.

Skills gap as the biggest barrier to AI adoption

Across Southeast Asia, skills gap remains the biggest barrier to AI adoption. 52% of businesses in Malaysia claim the shortage of digital and AI skills prevents them from adopting or expanding AI use. This challenge is more acute than in Singapore (43%) and in Thailand (47%), but less severe than in Indonesia (57%), the Philippines (57%), and Vietnam (55%).

Amid ongoing talent shortages, Malaysian businesses say they would be willing to increase a salary offer by 34% for a candidate with strong AI skills. The skills most lacking skills in the Malaysian workforce today are adapting to new digital technologies (43%), data analysis and interpretation (39%), and the basics of AI and machine learning (32%).

Malaysian businesses expect AI literacy to be important for 54% of jobs in the next three years and only 29% of businesses feel prepared with their current skillset. A fifth (22%) of employees have participated in digital training or upskilling in the past year.

The AI talent shortage has become a pressing challenge for businesses worldwide. A recent survey by tech consultancy BearingPoint polled more than 1,000 C-suite executives and found that 92% of organizations are currently facing acute shortages of over 30% of AI-critical skills. While these shortages are expected to ease, nearly half of leaders still anticipate significant gaps of 20-40% in critical roles by 2028.

Featured image: Edited by Fintech News Singapore, based on images by leonunes and leonunes via Freepik