How the Authoritarian Middle East Became the Capital of Silicon Valley

The Washington Post / Elizabeth Dwoskin, Ellen Nakashima, Nitasha Tiku, Cat Zakrzewski

16:55 JST, May 16, 2024

Two years ago, Andrew Feldman couldn’t find Abu Dhabi on a map. But like many Silicon Valley leaders, the artificial intelligence entrepreneur has been wooed by the promise of Middle Eastern partnership and money.

On trips to the glittering capital of the United Arab Emirates, he’s toured a government-built synagogue and a local outpost of the Louvre. The city is so teeming with the tech sector that he ran into fellow California start-up founders in the lobby of the Four Seasons Hotel. Meanwhile, millions from the oil-rich UAE are allowing Feldman’s Cerebras to build advanced supercomputer data centers in Stockton, Calif., Dallas and on the outskirts of the Emirati desert city.

He’s among a generation of tech founders and investors quietly pilgrimaging to the sovereign wealth funds of the Persian Gulf states, pursuing deals with authoritarian regimes. Microsoft last month announced a $1.5 billion investment in G42, the United Arab Emirates’ flagship tech firm, which also has an agreement to use AI language models from Sam Altman’s OpenAI. Prominent venture capital firm Andreessen Horowitz is in talks to raise $40 billion from Saudi Arabia for a dedicated AI fund.

The cutthroat and costly ambition of the AI arms race is driving a seismic shift in the region’s prominence, changing how one of the world’s most advanced technologies gets built and the players who stand to benefit, according to interviews with more than two dozen investors, tech company executives and government officials that have dealt with the region, many of whom spoke on the condition of anonymity for fear of damaging business relationships.

Some tech entrepreneurs and venture firms once shunned Middle Eastern funding, driven by concern for human rights abuses, the region’s ties to China and industry disdain for what were once considered lucrative, but unsophisticated, investments, deemed “dumb money,” from oil states. The 2018 killing of Saudi journalist and Washington Post contributor Jamal Khashoggi caused some firms to explicitly step away from the country’s cash.

But Middle Eastern money has become the most powerful geopolitical force in the tech industry virtually overnight. “The Khashoggi era is over,” said a prominent venture capitalist.

“Everyone I talk to is either going to or coming back from the UAE – the same way we used to swing by Sand Hill Road,” said Feldman, referring to the street that’s home to Silicon Valley’s storied venture capital firms. Feldman will visit Saudi Arabia later this year.

Washington is steering some of this shift, using the industry to push the region away from China’s orbit and focusing particularly on the UAE, a key U.S. security partner. The White House hosted executives from firms including Microsoft, Google and OpenAI last June for a meet-and-greet with Tahnoun bin Zayed al Nahyan, UAE’s national security adviser.

In the previously unreported meeting, the sheikh explained that the wealthy gulf state was open to partnering with leading American artificial intelligence and other tech firms, with the idea that these were ventures that could displace Chinese technology companies long involved in the region.

Some Silicon Valley companies have personal backchannels with U.S. officials: OpenAI CEO Sam Altman, who has taken at least four fundraising trips to the UAE to raise hundreds of billions for a massive new infrastructure company, internally dubbed InfraCo, is on a text message thread with Commerce Secretary Gina Raimondo, according to four of the people.

“AI is the new frontier for everything, including for geopolitical power,” Menlo Ventures partner Venky Ganesan, whose Silicon Valley firm pivoted to AI in late 2021. “The U.S. has a lead and they want to make sure it stays that way.”

The Middle East is using the Silicon Valley partnerships achieve its own urgent goals: To become an AI powerhouse and lessen its economic dependence on oil, for which global demand is projected to peak this decade. With Cerebras’s technology, G42 is building what could become the world’s most advanced Arabic large language model, enabling AI software to fluidly converse in a language spoken by about 400 million people.

But some tech executives and security researchers say the industry should be wary about working with countries that commit human rights abuses and that could use American technologies for surveillance – including to target U.S. citizens.

“The problem is, where do each of those chips end up once you sell them,” said an investor who works on Middle East-U.S. deals. “That’s not always something you can control.”

The AI arms race goes global

Though rising global powers have poured money into Silicon Valley in the past decade, the industry has historically avoided questions about national security risks.

During a period of openness from the Chinese government in the 2010s, national giants like Alibaba and Tencent made big investments in promising U.S. start-ups, while American investors poured billions into TikTok parent ByteDance. Though the degree of Chinese government control hovered over deals with Chinese partners, entrepreneurs eager to tap the country’s billion-person consumer market didn’t ask hard questions.

The Middle East crashed the tech scene through a side door. Tens of billions from Saudi Arabia and UAE sovereign wealth firms enabled the Japanese conglomerate SoftBank to launch in 2017 the largest single fund in tech history, the $100 billion Vision Fund. Mohammed bin Salman Al Saud, the crown prince of Saudi Arabia known as MBS, announced a growing presence in Silicon Valley by dining with investors Peter Thiel, Marc Andreessen and Altman, renting the entire Four Seasons Hotel.

The Vision Fund showered start-ups that were hot at the time, such as Uber and WeWork, with so much cash it fueled a new category of elite start-up unicorns, called 10-headed “decacorns.” The competition forced Sand Hill road firms, whose funds rarely topped $1 billion, to embark on their own multibillion-dollar fundraising sprees. Together, UAE and Saudi sovereign wealth funds reportedly manage more than $2 trillion in capital.

But as the clubby California tech world was discovering new global opportunities, cracks emerged when Khashoggi was killed by government agents at the Saudi consulate in Istanbul. (In 2021, The Washington Post reported that a UAE agency put spyware on Khashoggi’s wife’s cellphone months before his murder.)

“Who are our investors and can we be proud of them?” asked the influential venture capitalist Fred Wilson in a 2018 blog post, imploring the tech community to do “a deep dive on our investor base.”

Uber CEO Dara Khosrowshahi pulled out of Saudi Arabia’s “Davos in the Desert” conference, as did SoftBank’s CEO Masayoshi Son and others. Altman, then running start-up incubator Y-Combinator, announced he would suspend his involvement with the advisory board for Neom, a futuristic city in the Islamic theocracy, “until the facts regarding Jamal Khashoggi’s disappearance are known.” In 2020, the Saudis stopped investing in SoftBank.

But thanks to a collision of circumstances, the industry is once again scrambling for foreign capital. Falling tech stocks have hurt the sector’s fortunes. Many in the tech world have pulled out of China because of escalating tension. And the steep price of the semiconductor chips and energy required to power AI is triggering a sprint for cash.

“There’s a tremendous battle” taking place, Feldman said of the current AI arms race, adding that he does not sell his equipment to China. “There are a class of companies that require tens of billions of dollars to build, and there’s not a venture vehicle in the U.S. that can fund that.”

The tip of the spear

At the World Economic Forum in Davos, Switzerland, this year, two giant showcases of Middle Eastern tech firepower were on display on the city’s central promenade: A glossy storefront for the Saudi smart city Neom and a sleek white pavilion from the UAE, emblazoned with the slogan, “Tolerant Nations Are Global.”

The countries – rivals and sometimes partners – are turning to tech as they plot their move away from oil. Saudi Arabia’s 10-year national plan, posted in 2016, promised to “never allow our country ever to be at the mercy” of volatile commodity prices. Abu Dhabi’s leaders stated two years later that “the oil of the future is data.”

G42 is the expression of that ambition. The fund grew out of a research effort, formally launched in 2018 by the UAE’s spy chief and Peng Xiao, a Chinese-born and U.S.-educated former chief technology officer of a Virginia-based data analytics company.

The co-founders chose the number 42 because it was the answer to “everything” in the 1979 sci-fi novel “The Hitchhiker’s Guide to the Galaxy,” said Talal Alkaissi, G42’s chief product and global partnerships officer.

To build its empire, G42 launched numerous partnerships with Chinese companies, including e-commerce platform JollyChic and mobile internet service provider MenaMobile, which services the Middle East. Telecommunications infrastructure and data centers in the UAE largely use technology from Huawei, the Chinese company whose equipment has been banned in the United States.

“The Chinese put boots on the ground,” said an investor of the country’s long-standing presence in the region. For a long time, “The guys in the West didn’t get it.”

El Mahdi El Mhamdi, an AI security researcher and assistant professor at the French university École Polytechnique, said U.S. companies should be wary of the Middle East’s record of cyberwarfare and civilian surveillance, regardless of whether a country is an ally.

“Anyone seeing AI companies team up with dictatorships is right to be concerned,” said El Mhamdi. He pointed to Pegasus, the spyware used by the UAE and other countries to hack into phones through messaging apps. “If you enjoyed WhatsApp images to send spyware, you will love AI models and AI data sets to send spyware.”

And as the West begins to engage, the region is facing pressure to choose a side.

Gulf state officials have long stressed their ability to work with rival superpowers.

“We cannot afford to choose sides absolutely,” Omar Sultan Al Olama, the UAE’s AI minister, said in a January interview at the Davos conference. He emphasized the country is more aligned with the West on AI, while G42′s Alkaissi said the company is “going all in on the U.S. relationship.”

Administration officials offered a similar ultimatum when they began to engage the UAE about a year and a half ago.

White House officials at the time had concerns that China was constructing a secret military facility in the UAE as well as seeking technology to fuel development of weapons and surveillance systems. (The project, some U.S. officials told The Post, appears to have been suspended.)

Given the state of technology competition with China, “it’s going to be hard to coexist in both systems,” officials told their UAE counterparts, according to a senior administration official. “‘Look, you’re going to have to choose if you want to access that technology.’”

Before Microsoft invested in G42, the Biden administration won assurances the UAE company would divest from Chinese firms, remove Chinese technology from its data centers and would work to prevent advanced capabilities from leaking to China.

One senior administration official noted their effort to supplant Chinese technology in the Middle East is a “step-by-step” process. “This is a trust but verify scenario, where we’re going to stay vigilant and we know there are risks,” said a second administration official.

Rep. Mike Gallagher (R-Wis.) urged the Commerce Department in a January letter to assess whether G42 should be blacklisted along with Huawei, citing the company’s business relationships with Chinese state entities. The letter cited Xiao’s former leadership position at Pegasus, a subsidiary of the Emirati firm DarkMatter. The firm develops spyware and surveillance tools used on dissidents and journalists, and former U.S. military and intelligence members who worked for DarkMatter were fined by the U.S. Justice Department.

Gallagher called G42′s divestment from China a “welcome first step” but added “it is imperative the United States and the UAE further … mitigate” risky commercial relationships with Chinese entities.

Feldman said his staff got green lights from the Commerce Department before his first trip in 2023. He says he found G42 executives and officials to be forward-thinking about the future of artificial intelligence, inking a deal in only six weeks.

Altman and other executives also took cues from the U.S. officials, who had also cautioned them to protect their technology when dealing with Emirati partners. Initially, the executives went into the region “in a tiptoeing way,” said a person familiar with Altman’s plans, who spoke on the condition of anonymity to reveal sensitive business negotiations.

Altman has been fundraising in the UAE as well as Japan, Korea, and Canada, exploring the possibility of developing a massive type of data center that is purpose-built for processing AI tasks. The ambitious InfraCo project, details of which have not been previously reported, could entail purchasing large amounts of semiconductor chips, along with real estate and power – a multibillion dollar undertaking that would service customers beyond OpenAI.

Not everyone in Silicon Valley has embraced the new fundraising climate, but most of those concerned say their bigger worry is Saudi Arabia.

One start-up founder who recently turned down interest from Saudi investors said that Silicon Valley has accepted that most advanced AI tech will eventually get into the hands of foreign militaries. This is coupled with the belief that the U.S. defense sector commits its own human rights abuses and that the AI war is too important to be lost.

“Nobody cares where their money is from as long as they can find money,” said Andrew King, a venture capitalist and founder of Future Union, a nonprofit that has advised lawmakers on China risks. “It’s like see no evil, hear no evil.”