Middle East "Tycoons" Speed Up AI Investment, Fueling AI Boom

Sovereign wealth funds from the Middle East are becoming key supporters of Silicon Valley's artificial intelligence (AI) darlings. Oil-rich countries such as Saudi Arabia, the United Arab Emirates (UAE), Kuwait, and Qatar have been seeking economic diversification and using technology investments as a hedging tool. Data from Pitchbook shows that investments by Middle Eastern sovereign nations in AI companies have increased fivefold over the past year.

Two sources revealed that MGX, a newly established AI fund in the UAE, is one of the investors hoping to participate in OpenAI's latest financing round, which is expected to value OpenAI at $150 billion.

Few venture capital funds have the financial strength to compete with tech giants like Microsoft (MSFT.US) and Amazon (AMZN.US) in terms of billions of dollars in investments. However, these sovereign funds have no problem raising funds for AI deals. They represent Middle Eastern countries that have benefited from rising energy prices in recent years. Goldman Sachs estimates that by 2026, the total wealth of Gulf Cooperation Council (GCC) member countries is expected to increase from $2.7 trillion to $3.5 trillion.

The Saudi Public Investment Fund (PIF), with assets exceeding $925 billion, has been investing heavily as part of Crown Prince Mohammed bin Salman's "Vision 2030" initiative. PIF has invested in companies like Uber (UBER.US) and has also made significant investments in the LIV Golf League and professional soccer.

Mubadala in the UAE manages $302 billion in assets, while the Abu Dhabi Investment Authority manages $1 trillion. The Qatar Investment Authority manages $475 billion in assets, and Kuwait's funds manage assets exceeding $800 billion.

Earlier, MGX, based in Abu Dhabi, established an AI infrastructure partnership with BlackRock, Microsoft, and Global Infrastructure Partners, aiming to raise up to $100 billion for data center and other infrastructure investments. MGX, founded in March this year, is a specialized AI fund with Abu Dhabi's Mubadala and AI company G42 as its founding partners.

According to Pitchbook, Mubadala has also invested in OpenAI's competitor Anthropic and is one of the most active venture investors, having made eight AI deals in the past four years. Sources revealed that Anthropic, citing national security concerns, refused to accept Saudi funds in the last financing round.

However, Saudi Arabia's PIF is negotiating a $40 billion partnership with U.S. venture capital firm Andreessen Horowitz. It has also established an AI fund called Saudi AI Company (SCAI).

It's not just the Middle East investing in the AI sector. Pitchbook data shows that French sovereign fund Bpifrance has closed 161 AI and machine learning deals over the past four years, while Singapore's Temasek has completed 47 deals. Another Singapore-backed fund, GIC, has completed 24 deals.

The influx of substantial cash has raised concerns among some Silicon Valley investors about the so-called SoftBank effect. It is known that SoftBank Group's Vision Fund heavily invested in Uber and WeWork, pushing the valuations of these two companies to astronomical levels before their IPOs. In 2019, SoftBank valued WeWork at $47 billion, but WeWork filed for bankruptcy last year.