Microsoft’s recently announced deal to acquire a $1.5 billion share of United Arab Emirates-based AI company G42 is the culmination of months of coordination and negotiation among the companies and their respective governments. G42 will now begin getting computing power from Microsoft’s Azure data centers, and will resell certain Microsoft AI services.
Behind the U.S. government’s involvement in the deal is a desire to push back on China’s growing influence in the Gulf region and its bid for AI supremacy. The terms of the deal require that G42 and Microsoft comply with special security protections of technology assets and intellectual property, presumably to guard against leakage to China or other U.S. adversaries. G42 also agreed to strip out and replace all Chinese-made (Huawei) servers from its infrastructure.
For the U.S. government, the deal is a move in a burgeoning cold war with China—a rivalry where the chess pieces aren’t nukes and proxy armies but technological and economic influence. The Chinese government has announced more than $110 billion in technology merger and acquisition deals since 2015, says the Brookings Institute. The Chinese government is able to easily access AI developed in its private sector for use in intelligence gathering and defense—a concept the Chinese call “military-civil fusion.” The Chinese threat, including in AI, is the main justification for a yearly U.S. defense spend that could approach $1 trillion in FY2024.
For Microsoft, the G42 deal represents a major step in a different kind of cold war. Microsoft has emerged as a central player in the AI arms race, and has been extremely successful in buying influence over some of the space’s most important companies.
Microsoft was the first big tech company to realize the potential of OpenAI, and invest. In early 2023, it paid $10 billion for an estimated 49% ownership in the company. (It also backed CEO Sam Altman during the company’s brief and tumultuous leadership changes last fall.) In February, Microsoft bought a small $16 million share in the French AI upstart, Mistral, to have a key player in the global AI race. Microsoft was also an investor in Inflection AI, the company founded by DeepMind founder Mustafa Suleyman and LinkedIn billionaire Reid Hoffman. And it was ready when Inflection gave up its plans to be a consumer AI company, hiring away Suleyman and most of Inflection’s staff and nabbing the rights to distribute Inflection’s emotionally intelligent AI model through its Azure cloud.
“Satya [Nadella] gets the game,” says Emerj Artificial Intelligence Research founder Dan Faggella, speaking about the Microsoft CEO. “If the U.S. is unable to provide the power for his data centers, he is fully aware that he may be able to find the power he needs in the Middle East. There are companies in the Middle East that are in stealth mode that are raising huge amounts of money and building giant data centers that are purpose-built for pure AI work, for training and inference.”
Microsoft has a long and friendly relationship with the U.S. government, including numerous contracts to build computer networks and even AR glasses for the military. It has legions of lobbyists in D.C., as well as people like Brad Smith, who is seen in the Capital as a trusted and friendly face from the tech world (much like Eric Schmidt). By helping the Biden administration in the sphere of geopolitics, Microsoft furthered its own influence in the AI world.