Middle Eastern sovereign wealth funds are emerging as major backers of Silicon Valley’s artificial intelligence darlings.
Oil-rich nations such as Saudi Arabia, the United Arab Emirates, Kuwait and Qatar are looking to diversify their economies and are turning to tech investments as a hedge, with funding from Middle Eastern countries into AI companies increasing fivefold in the past year, according to PitchBook data.
MGX, a new AI fund out of the United Arab Emirates, is among the investors looking to get a piece of OpenAI’s latest funding round this week, two sources told CNBC. The round is expected to value OpenAI at $150 billion, according to the people, who asked not to be identified because the discussions are confidential.
Few venture funds have the financial muscle to compete with billion-dollar funds. Microsoft and AmazonBut these sovereign wealth funds have no problem raising capital for AI-related deals. They invest on behalf of national governments, and have been helped by rising energy prices in recent years. According to Goldman Sachs, the total assets of the Gulf Cooperation Council (GCC) countries are expected to grow from $2.7 trillion to $3.5 trillion by 2026.
The Saudi Public Investment Fund (PIF) has more than $925 billion to invest as part of Crown Prince Mohammed bin Salman’s Vision 2030 initiative. The PIF has investments in companies like Uber, as well as heavily investing in the LIV golf league and professional soccer.
The UAE’s Mubadala manages $302 billion, the Abu Dhabi Investment Authority manages $1 trillion, the Qatar Investment Authority has $475 billion and Kuwait’s fund has more than $800 billion.
Earlier this week, Abu Dhabi-based MGX joined the AI infrastructure partnership. Black Rock, Microsoft MGX, which is seeking to raise up to $100 billion for data centers and other infrastructure investments, was launched in March as an AI-only fund with Abu Dhabi’s Mubadala and AI company G42 as founding partners.
The UAE’s Mubadala has also invested in OpenAI rival Antropic, making it one of the most active venture investors with eight AI deals in the past four years, according to Pitchbook. Antropic rejected funding from Saudi Arabia in its last funding round, citing national security concerns, people familiar with the matter told CNBC.
Saudi Arabia’s PIF is in talks to form a $40 billion partnership with US venture capital firm Andreessen Horowitz and has also launched a dedicated AI fund called the Saudi Company for Artificial Intelligence (SCAI).
Still, Saudi Arabia’s human rights record remains an issue for some Western partners and start-ups, the most notable incident in recent years being the alleged murder of Washington Post journalist Jamal Khashoggi in 2018, which sparked an international backlash in the business community.
The Middle East isn’t the only one pouring money into the space: French sovereign wealth fund Bpifrance has closed 161 AI and machine learning-related deals in the past four years, while Singapore’s Temasek has completed 47, according to PitchBook. Another Singapore-backed fund, GIC, has completed 24 deals.
The influx of money has some Silicon Valley investors worried about the “SoftBank effect,” a reference to Masayoshi Son’s Vision Fund. SoftBank’s notable investments in Uber and WeWork helped soar their valuations ahead of their public offerings. WeWork was forced into bankruptcy last year after being valued by SoftBank at $47 billion in 2019.
For the U.S., it has become a geopolitical priority for sovereign wealth funds to invest in U.S. companies rather than global adversaries like China. Jared Cohen of Goldman Sachs Global Institute said a disproportionate amount of capital is coming from countries like Saudi Arabia and the United Arab Emirates, which he describes as “geopolitical battleground states.”
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