Microsoft and OpenAI ally embroiled in national security controversy in Middle East

Tech giants like Microsoft have hinted in recent earnings calls that they plan to invest heavily in AI. And it’s not just about the billions of dollars being invested in US AI companies like Microsoft partner and ChatGPT developer OpenAI, or the exploding costs of data centers. Microsoft and its big tech competitors are engaged in a race for global AI dominance and a rivalry with China.

As part of its broader strategic planning, Microsoft invested $1.5 billion in G42, the leading artificial intelligence company in the United Arab Emirates. The deal gave Microsoft access to vast amounts of data, the deep pockets of the oil-rich Middle Eastern country’s ambitious rulers, and a looser regulatory environment.

Free from political disputes and the barriers inherent in democratic legal systems, the UAE’s technology ecosystem is overseen by Emirati authorities, who are more lenient than many Western countries in the use of anonymized citizen data to train AI models. In many areas of technology adoption, the UAE’s autocratic, state-capitalist government is seen as an advantage, allowing for the smooth and rapid mobilization of significant resources toward technology leadership goals.

G42 is central to Abu Dhabi’s AI ambitions and a partnership with Microsoft could spur the development of a robust AI ecosystem that could drive faster AI innovation. The UAE’s tax-free income can also help attract the world’s most sought-after AI researchers.

“Microsoft opened a data center there a few years ago, so it’s clear the company has invested in the region,” said Dan Romanoff, technology analyst at Morningstar.

Microsoft set up its first cloud data center in the UAE in 2019. Under the latest deal, G42 would use Microsoft’s Azure cloud computing platform as the backbone for developing and deploying AI services that it offers to all its customers. Beyond the UAE, Microsoft and G42 plan to build data centers in other countries, including East African countries.

These facilities for powering and cooling the giant AI supercomputers are fundamental to the continued development of the AI ​​ecosystem.

“The computing effort required for AI is large and consumes enormous amounts of electricity,” said Andrew Feldman, CEO and co-founder of US-based Cerebras Systems, a chip startup with ties in the region.

The availability of energy – from oil to natural gas to solar – in the UAE can also help build new data centers by shifting computing power away from overburdened power grids in other parts of the world.

OpenAI CEO Sam Altman has traveled to the United Arab Emirates several times with the goal of building a global AI coalition and said earlier this year that the region could serve as a global “regulatory sandbox” for AI testing.

Microsoft and OpenAI’s strong interest in the UAE is seen by industry observers as part of efforts to consolidate their leadership in AI and expand their global presence, particularly in emerging markets.

“For MSFT, this investment is more about acquiring customers on its Azure infrastructure and reinforcing the notion that the company is an early leader in AI by expanding OpenAI usage,” Romanoff said.

Feldman said the United Arab Emirates, and particularly its glamorous capital Abu Dhabi, have evolved from a regional AI hub to a global AI hub in recent quarters, with market leaders like Microsoft, OpenAI and others “pioneering there,” he said.

Feldman’s Cerebras is building advanced supercomputer data centers in California, Texas and Abu Dhabi, and is providing its AI technology to G42 to develop what could be the world’s most advanced model of the Greater Arabic language, a language spoken by about 400 million people, he noted.

But with tensions rising between the US and China, AI has become a crucial battleground, and for all the strategic reasons the UAE deal makes sense, it has also attracted a high level of attention on Capitol Hill, particularly in the context of G42’s relationship with China. The geopolitical landscape has become more complicated since Microsoft’s partnership with G42 was first announced. According to a New York Times report, there is growing unease among US intelligence officials about the potential transfer of sensitive American technology and data to China through G42’s partnerships, particularly with companies like Huawei. The Biden administration has reportedly pressured the UAE to sever its technology ties with China to protect critical AI technologies.

A statement released earlier this year by Mike Gallagher (R-WI), chairman of the House Select Committee on the Chinese Communist Party, also confirmed that Emirati company G42 had sold its shares in Chinese companies, which Gallagher called a “welcome first step.”

“The United Arab Emirates is an important and powerful ally that will only become more important to regional and global stability as AI advances. Therefore, it is imperative that the United States and the United Arab Emirates better understand and mitigate any high-risk trade and research relationships with PRC companies.”

Pressure from the US Congress has not let up. Earlier this month, Politico reported that Microsoft is now looking to adjust its $1.5 billion partnership with G42. The deal originally involved transferring sensitive AI hardware and intellectual property, including advanced semiconductors, to G42. However, Microsoft is now reportedly planning to lease its AI products to the AI ​​company instead.

Microsoft’s decision to change its strategy reflects the intense scrutiny and geopolitical challenges surrounding the deal, highlighting the complex interplay between global rivalry in the technology sector, national security and broader tensions between the U.S. and China in the artificial intelligence race.

Microsoft and G42 did not respond to emails seeking comment.

Some experts believe that the agreement still makes sense as a countermeasure against China.

“Microsoft’s investment in the UAE strengthens a key U.S. partner with advanced AI capabilities,” said Cory Johnson, chief market strategist and group analyst at The Futurum Group, a leading global technology consulting, media and research firm in Austin, Texas.

“This could indirectly hinder China’s influence in the strategically important Middle East market.”

China remains a serious competitor with significant government support. “However, to the extent that Microsoft is helping to build a regional AI hub in the UAE, it is unlikely that China will have a presence there,” Romanoff said. “Anywhere the West can have influence in China, it helps bring stability. So Microsoft’s investment in AI in the UAE should be viewed positively by the tech community as well as Western governments,” he added. “In 10 years, you could see a bustling startup community in the UAE where AI innovation is happening,” he added.

Microsoft’s relationship in the UAE comes amid an increased focus by U.S. tech giants on the Middle East’s AI potential, leading to a surge in investment and innovation in the region.

Leading Silicon Valley venture capital firm Andreessen Horowitz is reportedly planning to invest heavily in a $40 billion Saudi Arabian AI fund that could make the country the world’s largest investor in artificial intelligence.

Amazon has also set up data centers in the United Arab Emirates and is expanding its presence in Saudi Arabia to support the increasing adoption of artificial intelligence technologies.

Google recently expanded its cloud services presence in the Middle East with a new headquarters in Saudi Arabia.

But when it comes to developing AI, no country can stand alone. “The most effective results will come from countries that are open and welcome the best and brightest minds in the world,” Johnson said. “Collaborations like Microsoft and G42 are valuable, but fostering a global AI ecosystem is essential for long-term success. We should see this as a piece on the global AI chessboard, not a checkmate for China,” he said. “The race is far from over.”