Technology
Monday, September 23rd, 2024 3:33 pm EDT
Key Points
- Middle Eastern sovereign wealth funds are increasingly investing in AI: Oil-rich nations such as Saudi Arabia, UAE, Kuwait, and Qatar are diversifying their economies through significant investments in AI, with funding increasing fivefold in the past year. These countries have vast financial resources, bolstered by rising energy prices, to support AI companies like OpenAI and Anthropic.
- Large-scale partnerships and infrastructure investments: The UAE-based MGX fund is partnering with major companies like BlackRock, Microsoft, and Global Infrastructure Partners to raise up to $100 billion for AI infrastructure projects. Saudi Arabia’s Public Investment Fund (PIF) is also forming a $40 billion partnership with Andreessen Horowitz to further its AI ambitions.
- Geopolitical and ethical concerns: While sovereign wealth funds from the Middle East are increasingly involved in AI investments, some companies remain cautious due to concerns over national security and human rights, particularly in relation to Saudi Arabia’s controversial record. This influx of capital is also viewed as a geopolitical strategy by the U.S. to keep investments away from global adversaries like China.
Middle Eastern sovereign wealth funds, particularly from oil-rich nations such as Saudi Arabia, the United Arab Emirates (UAE), Kuwait, and Qatar, have become major financial backers of Silicon Valley’s artificial intelligence (AI) companies. These countries are diversifying their economies, leveraging their vast financial resources, which have been bolstered by rising energy prices, to invest in cutting-edge technology. According to Pitchbook, funding for AI firms from Middle Eastern sovereign funds has surged fivefold over the past year.
One notable investor is MGX, an AI-focused fund launched in the UAE, which reportedly sought to participate in OpenAI’s latest fundraising round. OpenAI’s valuation is expected to reach $150 billion. The competition for AI investments is fierce, as sovereign wealth funds can offer substantial financial backing that traditional venture capital funds often cannot match. The combined wealth of Gulf Cooperation Council (GCC) nations is projected to grow from $2.7 trillion to $3.5 trillion by 2026, according to Goldman Sachs. Saudi Arabia’s Public Investment Fund (PIF), which has grown to over $925 billion, is aggressively investing in technology and other sectors as part of Crown Prince Mohammed bin Salman’s Vision 2030 initiative, aiming to reduce the country’s dependence on oil. The UAE’s Mubadala, with $302 billion under management, and the Abu Dhabi Investment Authority, with $1 trillion, are also significant players in the AI space. Mubadala has invested in OpenAI rival Anthropic, one of the most active AI venture investors with multiple deals in the past four years.
Despite these funds’ financial clout, some AI startups are cautious about accepting money from certain Middle Eastern investors. Anthropic, for instance, avoided Saudi funds in a recent funding round due to concerns over national security. Additionally, Saudi Arabia’s human rights record, particularly the 2018 murder of journalist Jamal Khashoggi, has raised ethical concerns among some Western partners and startups.
The PIF is currently exploring a $40 billion partnership with U.S. venture capital firm Andreessen Horowitz and has also established its own AI-focused entity, the Saudi Company for Artificial Intelligence (SCAI). Meanwhile, the UAE-based MGX fund has partnered with BlackRock, Microsoft, and Global Infrastructure Partners to raise up to $100 billion for AI infrastructure investments, including data centers.
Outside the Middle East, other sovereign wealth funds are also increasing their investments in AI. French sovereign fund Bpifrance has completed 161 AI and machine learning deals over the past four years, while Singapore’s Temasek has made 47 such investments. However, some Silicon Valley investors are wary of potential consequences, drawing parallels to the SoftBank Vision Fund’s aggressive investment strategy, which inflated the valuations of companies like Uber and WeWork, the latter of which eventually spiraled into bankruptcy.
From a geopolitical perspective, the U.S. views these investments as favorable, preferring Middle Eastern capital to be directed toward American companies rather than adversaries like China. Jared Cohen of Goldman Sachs Global Institute described countries like Saudi Arabia and the UAE as “geopolitical swing states” with considerable capital that they are willing to deploy globally. This influx of Middle Eastern capital is reshaping the AI investment landscape, further intertwining technology and geopolitics.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/09/22/middle-eastern-funds-plowing-billions-into-the-hottest-ai-start-ups-.html
