The Middle East has rapidly emerged as a formidable player in the realm of artificial intelligence (AI) investment, with sovereign wealth funds from oil-rich nations such as Saudi Arabia, the United Arab Emirates (UAE), Kuwait, and Qatar taking a leading role in financing Silicon Valley’s most promising AI start-ups. In a strategic move to diversify their economies away from oil dependency, these nations are increasingly allocating significant resources to technology investments, particularly in AI. According to Pitchbook data, investments from Middle Eastern sovereign funds in AI companies have surged fivefold over the past year. One notable player is MGX, a newly established AI fund in the UAE, which recently participated in OpenAI’s latest funding round, aiming to secure a stake in a company valued at approximately $150 billion. As conventional venture capital firms struggle to match the enormous financial capacity of tech giants such as Microsoft and Amazon, these sovereign funds are capitalizing on their substantial resources to fuel the growth of AI initiatives. With the Gulf Cooperation Council (GCC) countries projected to see their combined wealth rise from $2.7 trillion to $3.5 trillion by 2026, the financial clout available for such investments will only increase, as reported by Goldman Sachs. The Saudi Public Investment Fund (PIF), boasting assets exceeding $925 billion, is a key driver of this investment trend. As part of Crown Prince Mohammed bin Salman’s ambitious “Vision 2030” initiative, the PIF has strategically invested in various sectors, including stakes in international companies like Uber and significant investments in sports franchises. The UAE’s Mubadala has approximately $302 billion under management, and the Abu Dhabi Investment Authority manages around $1 trillion in assets. Furthermore, the Qatar Investment Authority and Kuwait Investment Authority have significant funds of $475 billion and over $800 billion, respectively. Recently, MGX joined forces with esteemed organizations such as BlackRock, Microsoft, and Global Infrastructure Partners to create a partnership focused on AI infrastructure, with aspirations to accumulate up to $100 billion for investments in data centers and related infrastructures. Launched in March, MGX has positioned itself as a dedicated AI fund, with backing from Mubadala and AI firm G42. Notably, Mubadala has also invested in the prominent AI competitor Anthropic, engaging in eight AI transactions in the past four years. Conversely, Saudi Arabia’s PIF is negotiating to establish a $40 billion collaboration with reputable U.S. venture capital firm Andreessen Horowitz. The PIF also initiated the creation of the Saudi Company for Artificial Intelligence (SCAI), a dedicated fund for AI development. However, caution remains, as the kingdom’s human rights record poses challenges for attracting Western partners. The contentious killing of journalist Jamal Khashoggi in 2018 continues to cast a shadow over Saudi Arabia’s global business engagements. Investment in AI is not solely confined to the Middle East; other nations are also actively participating. The French sovereign fund Bpifrance has engaged in 161 AI and machine learning deals in the past four years, while Singapore’s Temasek has completed 47 such deals. GIC, another Singapore-backed investment entity, has been involved in 24 AI transactions. The influx of capital from sovereign wealth funds raises concerns among some Silicon Valley investors who fear a repeat of the ‘SoftBank effect,’ referencing the significant investments made by Masayoshi Son’s Vision Fund, which was pivotal in inflating the valuations of companies like Uber and WeWork. The cautionary tales of WeWork’s subsequent bankruptcy highlight the risks associated with inflated valuations. From a geopolitical perspective, it is crucial for the United States to foster partnerships with sovereign wealth funds that invest domestically rather than in global adversaries, particularly China. As articulated by Jared Cohen of the Goldman Sachs Global Institute, there is an evident dominance of capital originating from regions such as Saudi Arabia and the UAE, with a strong inclination to invest around the world, designating them as “geopolitical swing states.”
Original Source: www.cnbc.com
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