Sovereign wealth funds out of the Middle East are emerging as key backers of Silicon Valley's artificial intelligence darlings.
Oil-rich nations like Saudi Arabia, United Arab Emirates, Kuwait and Qatar have been looking to diversify their economies, and are turning to tech investments as a hedge. In the past year, funding for AI companies by Middle-Eastern sovereigns has increased fivefold, according to data from Pitchbook.
MGX, a new AI fund out of The United Arab Emirates, was among investors looking to get a slice of OpenAI's latest fundraise this week, two sources told CNBC. The round is set to value OpenAI at $150 billion, said the people, who asked not to be named because the discussions are confidential.
Few venture funds have deep enough pockets to compete with the multibillion-dollar checks coming from the likes of Microsoft and Amazon. But these sovereign funds have no problem coming up with cash for AI deals. They invest on behalf of their governments, which have been helped by rising energy prices in recent years. The Gulf Cooperation Council, or GCC, countries' total wealth is expected to rise from $2.7 trillion to $3.5 trillion by 2026, according to Goldman Sachs.
The Saudi Public Investment Fund, or PIF, has topped $925 billion, and has been on an investing spree as part of Crown Prince Mohammed bin Salman's "Vision 2030" initiative. The PIF has investments in companies including Uber, while also spending heavily on the LIV golf league and professional soccer.
UAE's Mubadala has $302 billion under management, and the Abu Dhabi Investment Authority has $1 trillion under management. Qatar Investment Authority has $475 billion, while Kuwait's fund has topped $800 billion.
Earlier this week, Abu Dhabi-based MGX joined a partnership on AI infrastructure with BlackRock, Microsoft and Global Infrastructure Partners, aiming to raise as much as $100 billion for data centers and other infrastructure investments. MGX was launched as a dedicated AI fund in March, with Abu Dhabi's Mubadala and AI firm G42 as founding partners.
UAE's Mubadala has also invested in OpenAI rival Anthropic, and is among the most active venture investors, with eight AI deals in the past four years, according to Pitchbook. Anthropic ruled out taking money from the Saudis in its last funding round, citing national security, sources told CNBC.
Saudi Arabia's PIF is in talks to create a $40 billion partnership with U.S. venture capital firm Andreessen Horowitz. It also launched a dedicated AI fund called the Saudi Company for Artificial Intelligence, or SCAI.
Still, the kingdom's human rights record remains an issue for some Western partners and start-ups. The most notable case in recent years was the alleged killing of Washington Post journalist Jamal Khashoggi in 2018, an event that triggered international backlash in the business community.
It's not just the Middle East spraying money into the space. French sovereign fund Bpifrance has inked 161 AI and machine learning deals in the past four years, while Temasek out of Singapore has completed 47, according to Pitchbook. GIC, another Singapore-backed fund, has completed 24 deals.
The flood of cash has some Silicon Valley investors worried about a SoftBank effect, referring to Masayoshi Son's Vision Fund. SoftBank notably backed Uber and WeWork, pushing the companies to sky-high, valuations before going public. WeWork spiraled into bankruptcy last year after being valued by SoftBank at $47 billion in 2019.
For the U.S., having sovereign wealth funds invest in American companies, and not in global adversaries like China, has been a geopolitical priority. Jared Cohen of Goldman Sachs Global Institute said there's a disproportionate amount of capital coming from nations like Saudi Arabia and UAE, and a willingness to deploy it around the world. He described them as "geopolitical swing states."
