Microsoft expands G42 partnership with $1.5 billion investment

Microsoft is expanding its partnership with UAE-based AI research, cloud computing, and data center service-providing firm G42 by investing $1.5 billion in the company. The investment will see Microsoft President Brad Smith join the board of G42.

As part of the deal, G42 will run its AI applications and services on Microsoft Azure and partner with Microsoft to deliver advanced AI-based services or offerings to global public sector clients and large enterprises, the companies said in a joint statement.

[ Follow-up: US lawmakers raise a red flag over Microsoft’s $1.5B investment in G42 ]

G42 and Microsoft will also work together to bring advanced AI and digital infrastructure to countries in the Middle East, Central Asia, and Africa, they added.

Last year in September, both companies entered into an agreement to introduce sovereign cloud offerings and collaborate on unlocking the potential of advanced AI capabilities on the Azure public cloud platform.  

The recent investment could be seen as an extension of the earlier agreement.

Microsoft, in October last year, put its Cloud for Sovereignty in public preview with plans to make it generally available in December with the help of partners such as G42, Accenture, Atea, and Leonardo.

Microsoft’s rivals also have been building hyperscale data centers in the region at an increasing pace to meet demand spurred by cloud adoption as Middle Eastern businesses modernize applications such as ERP, and in the wake of the pandemic loosen up on remote work.

In August Amazon Web Services (AWS) opened a Tel Aviv cloud region and said it would invest $7.2 billion in Israel by 2037. In February, Oracle said it would invest $1.5 billion in Saudi Arabia to expand cloud capacity.

G42 and Microsoft also signed two other agreements with each other last year. In November, Microsoft announced the availability of G42’s Jais Arabic large language model (LLM) on its Azure AI Cloud Model-as-a-Service offering.

In April last year, Microsoft signed an agreement with G42 to develop AI-based offerings tailored for the public sector.

In addition to running its applications on Azure, the new investment will see both companies support the development of a skilled and diverse AI-based talent pool in the region.

Both companies said they are also planning to create a fund for developers with an investment of $1 billion.

G42’s China market pivot

The commercial partnership between Microsoft and G42, according to the joint statement, is backed by assurances to both governments through a first-of-its-kind agreement to apply responsible development and deployment of AI.

“Both companies will move forward with a commitment to comply with US and international trade, security, responsible AI, and business integrity laws and regulations,” the companies said, adding that the work on these topics is governed by a detailed Intergovernmental Assurance Agreement (IGAA) between G42 and Microsoft that was developed in close consultation with both the UAE and US governments.

The fact that G42 has agreed to comply with US trade regulations and the timing of the investment could spark speculations that G42’s pivot from the Chinese market could be behind the deal.

The saga began in January when US lawmakers called for an investigation of G42 over its association with Chinese entities.

In an open letter to US Department of Commerce Secretary Gina Raimondo, Mike Gallagher and the chairman of the House China Select Committee raised concerns about the extensive relationships G42 has with Chinese military and intelligence services and other state-owned entities.  

In February, G42 CEO Peng Xiao said that the company was scaling back its presence in China to invest in Western markets, such as the US, the UK, Germany, and other markets such as Israel.

G42’s partners in the US include companies such as OpenAI and Cerebras Systems.

While OpenAI has partnered with G42 to expand its operations in the Middle Eastern market, G42 has partnered with Cerebras Systems to create AI supercomputers. Speculations are also rife that OpenAI CEO Sam Altman has been in talks with G42 to raise money for setting up chip production plants.