Microsoft expands its global AI footprint to the UAE

Microsoft is making a major investment into the Abu Dhabi based AI firm G42, and it’s not the only foreign deal Microsoft has made recently. Steve Kovac is here to breakdown that for today’s tech check. Hey, Cadessa. Yeah, this is an interesting deal, but let me explain the high level first. Microsoft is spending 1 1/2 billion dollars for a minority stake in G42. That’s an AI startup based in the UAE, the latest in several foreign AI and cloud investments Microsoft has made in recent months. And the move is designed to continue its head start in AI, as well as locking up another major customer for its Azure cloud. As part of this deal, Microsoft president Brad Smith will join G42’s board and G42 will use Microsoft’s cloud to run its AI models. An additional billion dollars from the two companies together will also go towards training a local AI workforce. Now Microsoft has a growing network of AI footholds around the world. Some examples announced in just the last six months or so. A $2.9 billion investment in AI infrastructure in Japan That was from last week opening an AI office in London, a small investment in the French startup Mistral AI, and 3 1/2 billion dollars for data centers in Germany. Now what? Microsoft gets out today’s deal well, it’s not just a steak and some hot AI startup, it’s also a guarantee of more business for its Azure cloud unit in the Middle East. The more AI activity happening on Azure Azure, the more money Microsoft makes. A geopolitical angle also part of this deal, and it’s kind of unusual. The US and UAE governments are on board with the deal after Microsoft committed to secure development of AI with G42. But it goes further than that as the US tries to prevent China from gaining advantage. AI. A congressional committee earlier this year flagged G42 for using Chinese tech and suggested to the Department of Commerce it may need to block tech exports to the company. G42 later said it would not use Chinese technology, opening up the space for Microsoft to come in. And of course, it has the blessing of Commerce Secretary Gina Raimondo. So G42 was using Chinese tech. They were. And they were involved in some Chinese startups, but they were a UAE company. They’re based in the UAE, that’s correct. But there’s also reports that they’re involved, an investor in Bytedance, the Chinese parent to Tiktok and some other things like that that cause concerns for us here in the West. Pollination. Exactly. And so, you know, what we saw over the last several months was the US kind of come in and flagged that saying, hey, we might put some export limits on what technology U.S. companies can do and they open up this deal. Correct me if I’m wrong, but one of Nadella’s great signatures has been Azure, right? Oh, 100%. That is before this AI stuff happened. That was the business, yes, Yes, exactly. And that was the motor of the stock price gains in how as a percentage of revenue. What is Azure do you know? We don’t know and they don’t break it out. They they lump it all into their entire cloud business. They tell us how much it grew year over year, but they do not tell us from what base. But it’s growing rapidly and it’s, you know, there’s some back of the envelope math. People have tried to figure out what Azure is worth, but look like the big point here is we’re seeing Microsoft go all around the world and put these footholds in places outside of the US where they can not only grow, you know, get their head start in AI, but also drive more sales for the Azure cloud business as well. So that’s that’s really important to watch, especially ahead of earnings. Well, it’s also interesting to watch how the government’s actions on being protective of our technology and national security are giving business such a big leg up. And you know, it’s not new, but there does seem to be an onslaught of it right now. Yeah, it’s it’s the CHIPS Act. You know, yesterday that Samsung just got that big award, Intel got a big award, but China is doing it as well. And so this is, you know, this has been Gina Raimondo’s thing is to keep a separated and competing against China and making sure these restrictions go in place so that the lead that at least the perceived lead that U.S. companies have can be maintained. I would also note, it’s interesting because Microsoft, they’re talking about security and so forth. Microsoft got just taken to task just a couple weeks ago for some cyber security failures that had like hacked emails and so forth of government officials. So not perfect reputation, but better than at least in the US governments mind better than a Chinese company taking over. Steve, thank you, Steve. Thanks.