Inside the Gulf states' trillion-dollar 'AI gamble'

VHO - With abundant energy and cash resources, the wealthy Gulf states in the Middle East are trying to position themselves as the next global Artificial Intelligence (AI) hub.

Wealthy Gulf states in the Middle East are trying to position themselves as the next global AI hub. Photo: CNBC

Spending billions on data center projects

After raking in trillions of dollars in oil revenue, Gulf states are ready to spend money on mega-projects like building sci-fi cities in the desert, major sports franchises and cutting-edge military equipment.

Now, faced with persistently low crude prices, some leaders in the region are looking to leverage their vast equity capital to build domestic artificial intelligence industries.

Saudi Arabia, the United Arab Emirates and Qatar in particular are spending billions of dollars on data center projects with partners including Microsoft and OpenAI, among others.

They are also trying to buy chips in bulk from Nvidia and AMD to fuel their AI ambitions.

In addition, US tech leaders also enjoy the region's favorable regulatory environment, unencumbered by Western-style bureaucracy, where leaders can quickly make important policy decisions.

OpenAI director Sam Altman, who regularly visits the region, highlighted Abu Dhabi as a place that talked about AI “before the technology became mainstream”.

However, without abundant human resources from the US or China, and with relatively young economies , Gulf countries will have to make great efforts to catch up in developing local human resources and infrastructure, according to observers.

Another key challenge, industry analysts say, is that access to advanced chips like GPUs (graphics processing units) and NPUs (neural processing units) is uncertain due to export controls and supply shocks, a risk for any country that does not produce its own semiconductors.

The region also needs to convince investors quickly of regulatory and geopolitical stability.

“The escalating regional conflict will remain a concern for potential investors as long as tensions between Israel and Hamas continue,” Torbjorn Soltvedt, lead analyst for MENA at Verisk Maplecroft, told CNBC.

Investors cite other challenges, including building a local ecosystem of startups, integrators and exit routes from scratch, and convincing the best AI engineers to move to the region.

How to stay ahead in the technology race?

Abu Dhabi is home to the Gulf's three most active sovereign wealth funds: ADIA, Mubadala and ADQ, with a combined asset value of around $1.7 trillion under management.

This makes Abu Dhabi the richest city in the world in terms of sovereign wealth funds, and these funds are heavily focused on artificial intelligence.

The UAE's main AI company is G42, which is chaired by National Security Adviser Sheikh Tahnoon bin Zayed al-Nahyan and run by CEO Peng Xiao.

Microsoft has pledged to invest $15.2 billion in the UAE between 2023 and 2029, following a $1.5 billion investment in G42. The move gives Microsoft a minority stake in the UAE tech company and a board seat.

This week, Microsoft announced it had been granted a specific license to export Nvidia's advanced AI chips to the UAE, although general export controls on advanced AI chips have not yet been lifted for the entire region.

Meanwhile, Saudi Arabia has its own national strategy to diversify its oil-dependent economy into areas such as technology and manufacturing.

Humain, which plans to provide AI capabilities across data centers, infrastructure, cloud platforms and advanced AI models, wants to position Saudi Arabia as the region's AI hub.

During President Trump's visit to the Bay Area, Humain announced it would purchase 18,000 Nvidia AI chips for use across its data centers and announced a $10 billion partnership with AMD.

Unlike the UAE and Saudi Arabia, Qatar does not have a sovereign wealth fund-backed AI consortium like G42 or Humain. Qatar’s strategy has a different focus and there does not appear to be any plans to develop an AI-focused company backed by the Qatar Investment Authority (QIA).

However, Qatar insists it will not be left behind and describes its strategy as “AI+X”, effectively integrating artificial intelligence into all sectors, including education, healthcare, governance and business.

Most of the fund's technology and media investments "use AI or are related to AI," a QIA spokesperson told CNBC.

QIA will invest across the entire AI value chain, from the infrastructure driving the AI ​​revolution to the LLMs [large language models] that businesses and consumers use every day.

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