AI: US export permissions for AI data centers abroad. #563
...US approvals critical for ongoing tech AI infrastructure partnerships in the middle east
The Bigger Picture, December 8, 2024
I’ve long discussed the ongoing ‘threading the needle’ exercise between the US and China on geopolitical issues, and of course limiting access to key US tech and AI chip technologies to China. This will likely continue with the new administration and Congress as well. That exercise has seeped into the urgent need for US tech and AI companies to invest trillions in multi-GW AI data centers both in the US and abroad. The mideast is one of those important areas abroad, and that is the Bigger Picture I’d like to focus on today.
The mideast of course, has deep pools of capital, and energy. That’s backed also by the keen interest to invest hundreds of billions in AI technology companies and AI infrastructure, both in the MENA/GCC region and around the world. MENA of course is the Middle East and North Africa, and GCC is the Gulf Cooperation Council, the regional organization comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.
I’ve discussed the accelerating set of partnerships and investments by US tech/VC/PE firms with Sovereign investors and entities in the region. A key uncertainty has been whether the US government, would green light the building of AI infrastructure in the region. That got a bit of a bump this week with the US approving an important partnership between Microsoft and UAE tech investment entity G42, as Axios reports in “Advanced AI chips cleared for export to UAE under Microsoft deal”:
“The U.S. government has approved the export of advanced AI chips to a Microsoft-operated facility in the UAE as part of the company's highly-scrutinized partnership with Emirati AI firm G42, two sources familiar with the deal told Axios.”
“Why it matters: The agreement between the tech giants is part of a U.S. effort to elbow China out of the UAE's rapidly expanding tech industry and disperse U.S.-developed AI technology around the world to counter China's Digital Silk Road.”
“Lawmakers have raised concerns over the partnership, saying there is a risk it could open up a back door for China to access the advanced technology.”
“The House China Select Committee earlier this year found G42 has "extensive ties" to several Chinese firms involved in surveillance and research for the military.”
The background and scope of the deal is of course meaningful:
“Catch up quick: Earlier this year, Microsoft said it was expanding its collaboration with G42 and investing $1.5 billion in the company.”
“G42 is chaired by the UAE's national security adviser Sheikh Tahnoon bin Zayed al-Nahyan — a force in the country's push to become a global AI powerhouse.”
“Microsoft and G42 announced a few months later that they would team up to launch two new AI institutes in Abu Dhabi.”
“The agreement came after G42 took steps to try to calm the U.S. government's nerves about its ties to Chinese companies. The company said it would remove hardware made by China's telecom giant Huawei from its systems.”
“G42 also divested from Chinese companies, but Bloomberg reported those investments were taken over by a fund overseen by Sheikh Tahnoon, whose private investment firm is G42's parent company.”
That Microsoft was the leading company in this deal is notable:
“Friction point: U.S. government approval to export the advanced AI chips that are key to the Microsoft-G42 partnership was delayed over continued concerns about the technology ending up in China's hands. The UAE and China remain close economic partners in other sectors and maintain military ties.”
“In September, Microsoft president and vice-chair Brad Smith, who received a seat on G42's board through the investment deal, told the Financial Times that "clarity and consistency" was needed from the U.S. government around export controls.”
“The Biden administration has considered capping export licenses for advanced AI chips to certain countries, Bloomberg reported in October.”
The government green light of course comes with specific requirements:
“Zoom in: The approved export license requires Microsoft to prevent access to the facility by personnel who are from Group D:5 countries, which are nations with U.S. arms embargoes, or who are on the Bureau of Industry and Security (BIS) Entity List, according to two sources familiar with the deal.”
“The restrictions cover people physically in China, the Chinese government or personnel working for any organization headquartered in China.”
“Individuals sanctioned by the Treasury Department are also not allowed access, according to a third source with knowledge of the issue. The license was approved in September, per the source.”
“The license prohibits the facility and its chips to be used for model training for people from Group D:5 countries, including China, according to two of the sources.”
“Sources couldn't confirm the chip manufacturer or type, but Nvidia has dominated the advanced AI chip market.”
Nvidia of course is a key player in the background in these types of deals.
And other US AI chipmakers are of course also in the mix:
“The big picture: While G42 builds its AI infrastructure in the UAE, it is training foundation models, including a bilingual Arabic-English large language model called Jais, at data centers in the U.S. through a partnership with AI chipmaker — and Nvidia competitor — Cerebras.”
“G42 announced in October its plans to build an "AI-optimized data center" that would be the largest yet in the UAE.”
“Saudi Arabia, where Microsoft is also investing heavily, is planning an AI project to rival the UAE's effort.”
The upcoming transition in administration and Congress is of course an ongoing element in how these deals continue to accelerate:
“What to watch: President-elect Trump's ties with Gulf states run deep, as he has continued striking business deals and engaging in diplomacy after his first term ended.”
“Trump is likely to continue fostering U.S.-UAE relations after he takes office.”
“But his administration will have to balance that approach with limiting China's access to sensitive U.S. technology, another area Trump has historically prioritized.”
Overall, this ‘threading of the needle’ in the middle east of US interests vs China adds to the complexity of the broader tug of war between US and China. That is the Bigger Picture to keep mind as US tech companies make sure they can build the AI data center infrastructure needed at Scale around the world, this AI Tech Wave. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)