Middle East AI Boom
Oil-rich nations such as Saudi Arabia, United Arab Emirates, Kuwait, and Qatar have been looking for ways to diversify their economies and now are using technology investment as a hedge. Over the past year, funding of Middle East AI has increased fivefold, according to data from Pitchbook.
GCC AI investments
The Middle East AI sector is booming, particularly in GCC countries, with large firms relying on AI to promote and innovate their work. MGX, a new AI-focused fund based in the United Arab Emirates, was among the investors pursuing a stake in OpenAI’s latest fundraising round this week, two sources told CNBC.
The round is expected to value OpenAI at $150 billion, said the sources, who requested anonymity due to the confidential nature of the discussions. Few VC funds have deep enough pockets to compete with the multibillion-dollar investments from companies like Microsoft and Amazon.
That’s only a minor cash flow issue for these sovereign funds when it comes to AI in middle east deals. GCC AI funds invest on behalf of their governments, which have benefited from rising energy prices in recent years. Goldman Sachs projects that the combined wealth of GCC nations will surge from $2.7 trillion to $3.5 trillion by 2026.
The Saudi Arabia AI fund, otherwise known as the Public Investment Fund (PIF), has surpassed $925 billion and has been on an investing spree as part of Crown Prince Mohammed bin Salman’s “Vision 2030” initiative.
The fund has heavily invested in companies like Uber, while also heavily investing in the LIV Golf League and professional soccer.
Any UAE AI investment arm, Mubadala, manages $302 billion, while the Abu Dhabi Investment Authority oversees $1 trillion. The Qatar Investment Authority manages $475 billion, and Kuwait’s fund has exceeded $800 billion.
Earlier this week, Abu Dhabi-based MGX joined a partnership with BlackRock, Microsoft, and Global Infrastructure Partners, aiming to raise up to $100 billion for data centers and other infrastructure investments. MGX, which launched in March as a pure-play AI fund, was founded in partnership with Abu Dhabi’s Mubadala and AI firm G42.
The UAE’s Mubadala has also invested in OpenAI rival Anthropic and is one of the most active venture investors, completing eight Middle East AI deals in the past four years, according to Pitchbook. Anthropic ruled out accepting funding from Saudi investors in its last funding round, citing national security concerns, sources previously told CNBC.
It is currently in discussions to create a $40 billion partnership with U.S. venture capital firm Andreessen Horowitz. Saudi Arabia AI also unveiled a dedicated AI fund called the Saudi Company for Artificial Intelligence, or SCAI, yet the human rights record of the kingdom remains a point of contention with some Western partners and startups.
Mubadala is currently in discussions to form a $40 billion partnership with U.S. venture capital firm Andreessen Horowitz. Meanwhile, Saudi Arabia AI fund called the Saudi Company for Artificial Intelligence (SCAI). However, the Kingdom’s human rights record remains a point of contention with some Western partners and startups.
The most notable noteworthy incident in recent years was the alleged 2018 murder of Washington Post journalist Jamal Khashoggi, which led to international backlash against Saudi Arabia within the business community.
It’s not just the Middle East pouring money into AI; French sovereign fund Bpifrance has completed 161 AI and machine learning deals over the past four years, while Singapore’s Temasek has closed 47 deals, according to Pitchbook. Another Singapore-backed fund, GIC, has completed 24 deals in the same period.
That flood of cash in Middle east AI investment has some Silicon Valley investors concerned about a SoftBank effect-a nod to Masayoshi Son’s Vision Fund. SoftBank famously backed Uber and WeWork, pushing the companies to sky-high pre-IPO valuations. WeWork spiraled into bankruptcy last year after SoftBank valued it at $47 billion in 2019.
For the US, the idea that sovereign wealth funds should invest in American companies, not global adversaries like China, has been a geopolitical priority.
“What we’re seeing is a disproportionate amount of capital emanating from countries like Saudi Arabia and the UAE, which at the same time have both an ability and will to deploy it around the world-what I would term the ‘geopolitical swing states,'” said Jared Cohen of Goldman Sachs Global Institute.
Final thoughts
The trend indicates that the influence of Middle Eastern sovereign wealth funds is growing within Silicon Valley’s AI landscape, marking a significant shift in global investment dynamics. This shift is likely to impact not only the tech sector but also international relations and economic partnerships, as these countries continue to diversify their economies through strategic investments in technology. A balance of power is emerging in venture capital, with far-reaching effects that will likely reverberate for years to come.
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