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Looking closer at Microsoft's investment in UAE AI vendor G42

The tech giant will own a minor stake, and G42's LLM will be on Azure. The move helps the cloud provider expand globally and helps the U.S. court the UAE away from China.

With its latest big move in the generative AI market, Microsoft kept up its rapid pace of significant investments in other GenAI vendors around the world.

The tech giant on April 15 revealed plans to invest $1.5 billion in G42, an AI vendor based in the United Arab Emirates (UAE). In exchange for the investment, Microsoft will own a minority stake in G42, and Vice Chair and President Brad Smith will take a seat on G42's board of directors.

G42's Arabic large language model Jais will also be available in the Azure AI Model Catalog. G42 developed the model in concert with AI vendor Cerebras; Mohamed bin Zayed University of Artificial Intelligence in Abu Dhabi; and M42, an Abu Dhabi-based healthcare provider and health information technology vendor with its own medical reporting LLM.

Microsoft's investment in G42 came a week after the cloud provider unveiled a new hub in London that focuses on consumer AI products and research, and about two months after it revealed plans to invest $16 million in French AI startup Mistral.

G42 will run its AI applications and services on the Microsoft Azure cloud, and the two companies will work together to bring digital infrastructure to countries where G42 operates in the Middle East, Central Asia and Africa, according to Microsoft.

Global diversification

The investments show that while Microsoft spent 2023 incorporating partner OpenAI's technology into its own product line, this year the tech giant is focusing on expanding its global reach into Europe and the Middle East.

Microsoft is increasingly in a strong position as it relates to the global rollout of AI.
Cory JohnsonAnalyst, Futurum Group

And Microsoft appears to be stabilizing after the leadership turmoil within OpenAI in November 2023, when the board fired and later rehired CEO Sam Altman.

"Once you decide to diversify your bets, if you want to think holistically about it, you think about not just diversifying the 'Silicon Valley peninsula,' but diversifying all over the world," Futurum Group analyst Cory Johnson said. "Microsoft is increasingly in a strong position as it relates to the global rollout of AI."

Also, with these moves Microsoft can continue to make multiple GenAI models available in its Azure AI Studio and get more AI providers to build their models on Azure infrastructure, while tapping into the needs of regions outside the U.S. and the models trained in the dominant languages of those regions.

"This is expanding the footprint across the globe and at the same time localizing it to the point where it's useful and practical for the enterprise customers in that part of the world," Gartner analyst Arun Chandrasekaran said.

Data centers and political motivation

The investment in G42 also speaks to the scarcity of data centers internationally, according to independent AI analyst Mark Beccue.

"Some of the data center experts are saying, 'We're running out of space, we can't build these fast enough,'" Beccue said.

The dramatic advances in AI technology have led to more demand for data centers. However, that trend has come with challenges, such as the demand for ever larger amounts of power amid a computing power shortage.

In September, Microsoft and G42 revealed plans to offer sovereign cloud services in the UAE and expand Microsoft's existing data center infrastructure in the country. This investment is helping Microsoft make good on that plan.

There's also a geopolitical aspect to the investment.

"The U.S. is actively courting the Middle East with a kind of partnership between American companies and the companies in the UAE," Chandrasekaran said.

As part of its unveiling of the investment, Microsoft said the U.S. and UAE governments support the investment and partnership between both companies, and the governments were consulted during the development of the deal.

Giving financial support to G42 also helps the U.S. keep certain products out of China amid the growing technology struggle between the two countries, Johnson said.

China and the U.S. have clashed over the development of emerging technology in the Middle East. Moreover, there are fears within the U.S. government that companies linked to China could have access to AI systems in the U.S.

G42 has been under increasing scrutiny by the U.S. government over its ties to China. In January, a U.S. lawmaker urged the Commerce Department to consider trade restrictions on G42 because of the company's relationships with some blacklisted Chinese companies, notably Huawei. This came after American spy agencies began warning authorities about G42 last year.

In response to those warnings, G42 started to phase out some of the Chinese hardware it used, including chips and processors, in November and December. It also sold its stake in Chinese companies such as TikTok owner ByteDance.

The vendor also strengthened its relationship with the U.S. by partnering with OpenAI last October to use OpenAI's generative AI models in the UAE and other international markets.

Some challenges

While the benefits of this deal outweigh the challenges, there are some things Microsoft will need to consider, Chandrasekaran said.

For one, Microsoft will need to establish more of a local presence, at least in some of the overseas regions. Moreover, he said, other countries might harbor their own AI ambitions to nurture other local AI providers, competing with Microsoft.

Despite those factors, over the years Microsoft has proven to vet each of its investments carefully, Beccue said.

"They are extremely protective of their [intellectual property]," he said. "They have a great franchise. It would be a huge risk for them to do something foolish without really vetting it."

Microsoft said it will also support the development of a skilled and diverse AI workforce and talent pool for the UAE with the investment of an additional $1 billion in a fund for developers.

Esther Ajao is a TechTarget Editorial news writer and podcast host covering artificial intelligence software and systems.

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