The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, March 22 (Reuters Breakingviews) - Yasir Al-Rumayyan is dreaming about artificial intelligence. The governor of Saudi Arabia’s $700 billion Public Investment Fund says the country is “fairly well positioned” to be an AI hub. Unlike some of the more outlandish ideas embraced by senior Saudis there’s a way to turn these visions into reality – but that depends on attracting the brainpower, and the support of AI bigwigs like OpenAI’s Sam Altman and SoftBank Group’s 9984.T Masayoshi Son.
Imagine Al-Rumayyan wanted to create an AI hub from scratch. He would semiconductors, implying an ability to produce chips. He would also data centres to store and process the huge amounts of information that go into AI large language models. Then there’s the intellectual property for the design of advanced chips, and the know-how that underpins the actual models themselves.
Gulf states may have to do all these things themselves, though. Take the data centres required to train and run AI models. Energy represents 60% of their operating costs, and the UAE and Saudi Arabia only have copious supplies of low-cost energy from fossil fuels, but also plentiful scope to expand solar power. Yet there isn’t currently a lack of investment in this area – in fact, Western asset managers like Blackstone BX.N and Brookfield are desperate to pile in. Hence Gulf states could probably find others willing to invest in their infrastructure, as Amazon did on March 4 in committing $5 billion to Saudi data centres.
Similarly, there’s for these countries to develop the capacity to physically manufacture semiconductors. True, chip plants consume lots of energy. But they also require a plentiful supply of water, which the Gulf region lacks: annual water demand in Saudi, for example, is times higher than its water supply, according to World Bank data. More importantly, the production of chips globally is dominated by Taiwan Semiconductor Manufacturing Co 2330.TW (TSMC), which has a 60% share of the global market. There’s little point in building domestic foundries when Saudi Arabia could just outsource production, like most other burgeoning AI markets do.
Where Saudi Arabia and the UAE do have a problem, though, is chip design. The Gulf is caught in the middle of an AI arms race between China and the United States. In August the U.S. restricted the shipping to the Middle East of thousands of high-performance chips that TSMC makes in Taiwan for $2.2 trillion AI star Nvidia NVDA.O. Officials in Washington want to stop Chinese firms from using Middle Eastern countries as a backdoor to access the chip technology.
These sorts of curbs threaten the Gulf states’ ambitions. The best chips are crucial for building AI software at speed. They helped a UAE research institute create Falcon, an Arabic-based open-source AI model which trained using 384 Nvidia A100 chips over two months last year. Falcon performed tasks better than Meta’s META.O Llama 2 and on a par with Google’s PaLM 2. To stand a chance of maintaining this lead and to compete with the likes of France’s Mistral and OpenAI, the region continuous access to the most advanced chips.
As such, the best use for the $200 billion that Saudi Arabia and the UAE have committed to spend on AI-related development is to create homegrown AI chip design capabilities. If the intellectual property originates in the Gulf, Riyadh and Abu Dhabi would be able to send designs to TSMC without restrictions from the United States.
The catch here is that designing chips requires deep knowledge of the industry to avoid missteps, like violating existing intellectual property. But the Gulf lacks homegrown talent. Instead, Riyadh and Abu Dhabi will have to persuade the global AI elite to move from desirable areas like Japan and California to the Middle East. Even with golden visas and generous tax rebates in the UAE – and Saudi Arabia recently easing rules on alcohol consumption – that’s a big ask.
That’s where the likes of Son and Altman come in. The SoftBank boss knows all about chip design given his investments in $130 billion UK player Arm ARM.O. He is helping 50 SoftBank-backed startups set up offices in Saudi Arabia. The Japanese entrepreneur wants to raise $70 billion from Middle East sources to invest in AI chip-design ventures, Bloomberg revealed citing people familiar with the matter. Meanwhile, Altman envisages as much as $7 trillion from investors including the UAE government, the Wall Street Journal reported without disclosing their sources. Saudi is also discussing a partnership with venture capital firm Andreessen Horowitz to invest $40 billion in AI, three people briefed on the plans told the New York Times. Crucially, the bigwigs want the same thing as Al-Rumayyan and the UAE: the scope to develop high-tech chip designs that don’t require them to be reliant on Nvidia.
Maybe Altman and Son will just pocket Saudi and UAE cash and build their own advanced chip facilities elsewhere on the globe. That wouldn’t create Al-Rumayyan’s dream of a domestic hub. It would also revive unfortunate memories of SoftBank’s ill-fated $100 billion Vision Fund, backed by Saudi’s Public Investment Fund and the UAE’s Mubadala, which has delivered an internal rate of return of 4% after roughly seven years. Son’s AI investment record is also far from spotless: SoftBank sold its 5% stake in Nvidia for $3.6 billion in 2019. Those shares are worth $113 billion.
Yet imagine if Altman and Son anointed the Gulf as the home for an Nvidia rival. At the right price, their endorsement could conceivably entice AI brainboxes from their Silicon Valley lairs. Given the constantly shifting of artificial intelligence, it wouldn’t guarantee success. But it would at least give Al-Rumayyan’s vision of an AI hub some hope of becoming reality.
Follow @karenkkwok on X
CONTEXT NEWS
Saudi Arabia plans to create a fund of about $40 billion to invest in artificial intelligence, with a potential partnership with Andreessen Horowitz, the New York Times reported on March 19 citing people briefed on the plans. Saudi representatives have mentioned to potential partners that the country is looking to back an array of tech startups tied to artificial intelligence, including chip makers and the data centres that are increasingly to power the generation of computing, four people with knowledge of those efforts told the NYT.
The United Arab Emirates on March 11 announced the creation of a technology investment firm, MGX, which is targeting deals in artificial intelligence and semiconductors and could surpass $100 billion in assets. The company will invest in three main areas: AI infrastructure such as data centres; semiconductors including logic and memory chip design and manufacturing; and AI models, software, data, life sciences and robotics. The company will build on Abu Dhabi’s existing investments in these areas and deploy capital alongside leading international technology and investment companies.
Alat, a formed entity owned by Saudi Arabia’s Public Investment Fund (PIF), aims to invest $100 billion in the kingdom by 2030, according to a statement by the group on Feb. 20. Its ambitions include contributing $9.3 billion to the -oil economy, creating 39,000 skilled jobs by 2030 and eventually aiming to export its hardware.
Alat partners with Dahua Technology, one of China’s biggest surveillance equipment makers, to manufacture surveillance hardware in Saudi Arabia, and it announced a $150 million partnership with Japan’s SoftBank Group to manufacture advanced robotics in the kingdom. It will also work with U.S. firm Carrier and Saudi’s Tahakom.
(Editing by George Hay and Oliver Taslic)
((For previous columns by the author, Reuters customers can click on KWOK/
karen.kwok@thomsonreuters.com; Reuters Messaging: karen.kwok.thomsonreuters.com@reuters.))