The AI Daily Brief: Artificial Intelligence News and Analysis - Microsoft's $1.5B AI Geopolitical Gambit in the UAE

Starting point is 00:00:00 Today on the AI breakdown, Microsoft's deal with G42 is a lot more political than it might seem at first. Before that on the brief, Black Rock, Blackstone, and Goldman Sachs are just a few of the Wall Street giants talking about artificial intelligence. The AI breakdown is a daily podcast and video about the most important news and discussions in AI. Go to Breakdown.network for more information about our YouTube, our Discord, and our newsletter. Welcome back to the AI breakdown brief, all the AI headline news you need in around five minutes. When it comes to Wall Street's enthusiasm around artificial intelligence, there are a few things to keep in mind. First of all, and I think that this can't be underestimated, unlike some other emergent technology categories, AI is already hitting the bottom line of a number of major companies translated via their cloud business.

Starting point is 00:00:49 We've seen Microsoft's Azure cloud business, for example, grow revenue, at least in part because of their new AI offerings. And that means that markets can see the financial benefit of AI right away. they don't have to just imagine it for the future. Now, on top of that, a second piece is, of course, hype. There's no denying the lofty language that we use to describe how big a deal AI will be in the future. But the third aspect is that by and large, we haven't seen great big productivity increases for a very long time. And a growing chorus is betting that with AI it actually will be different, that we will

Starting point is 00:01:18 see productivity increases in a way we haven't for a very long time. On a recent earnings call, Larry Fink, the CEO of BlackRock, said that he believed that the company's investments in AI would not only drive up productivity but also raise wages. He said on the call, we're going to bring down inflation in America. This is how it's going to have to be done driven through technology, which will increase productivity. What it also means is rising wages. The whole organization is doing more with less people as a percent of the overall organization. That is really our ambition. Fink was even willing to give some numbers around this. At a conference last year, he said that he was spending a lot of his time thinking about how

Starting point is 00:01:52 it would reshape BlackRock. He said, we spent a lot of time with different technologists who know much more about this than I do. They believe things like it will increase productivity by 30%. So outside of just changing how their organization runs, does BlackRock have any other engagement with the AI space? Well, the way the business insider puts it is that it's positioning itself as a key player to power the AI revolution by becoming the capital supplier for new data centers and power generation facilities. Meanwhile, another financial giant Stephen Schwartzman, the CEO of Blackstone, has a few more concerns, it seems. At the Asia-Pacific Financial and Innovation Symposium in Melbourne on Tuesday,

Starting point is 00:02:28 Schwartzman said there is a, quote, land rush underway to build data centers and other infrastructure for artificial intelligence. He said, this is like something I've never seen. The amount of money being invested in this area is breathtaking. It's happening now all over the world. And indeed, Blackstone is a part of that. In 2021, they acquired data center operator QTS in a $10 billion deal, said Schwartzman, different states in the U.S. are starting to run out of electricity.

Starting point is 00:02:49 that lack of capacity in the electric grids in the industrial world with AI and EVs is creating enormous investment opportunities. Schwartzman also said that he had recently spoken with Chinese president Xi Jinping, discussing the needs for global AI regulatory standards. And then there's David Solomon, the CEO of Goldman Sachs. He recently argued that the scale at which AI is driving companies to reinvent themselves is, quote, candidly unprecedented. Solomon basically argued that as enterprises go through this restructuring process, it creates lots of opportunities for Goldman Sachs. Now, he was saying this on an analyst call, so he was talking about the company's future prospects. He said, I actually think there's a very, very constructive runway of opportunity sets for us with our clients as people reposition their businesses. I think that opportunity is not a quarter to quarter thing. This is over the next five to 10 years, and we're very, very focused on it and very engaged.

Starting point is 00:03:36 He also noted that governments are, quote, making enormous investments in bringing infrastructure into their locales. So all in all, a lot of big financial talk when it comes to AI, which is once again why I think it's so silly when you see media outlets, try to argue that somehow the AI hype is dying down. Meanwhile, over in Big Techland, Google DeepMind CEO Demis Hes Sivas spoke at TED this week and said that over time Google will spend more than $100 billion developing their AI. The comments came after Hasavis was asked about Microsoft and Open AIs reported $100 billion supercomputer called Stargate. Hasabas said, we don't talk about specific numbers, but I think we're investing more than that over time. He also touted that Alphabet still had superior computing power to rivals even

Starting point is 00:04:17 including Microsoft. Indeed, he said that that's one of the reasons that DeepMind went to Google back when it was acquired. He said one of the reasons we teamed up with Google back in 2014 is we knew that in order to get to AGI, we would need a lot of compute. That's what's transpired, and Google had and still has the most computers. Even while Google tries to differentiate from big tech competitors like Amazon and Microsoft, the information notes that their cloud AI strategy is definitely starting to sound some similar notes. The reporter was talking about a recent Google Cloud Conference, where they heard one executive say, we don't believe one model will rule them all. This is, of course, the message that AWS has been touting and embedded into their

Starting point is 00:04:54 bedrock service. Although the author also makes the point, quote, side note, next time you hear someone say there won't be one model to rule them all, I'd challenge you to ask them who actually believes there will be one model to rule them all. Now, when it comes to what this means in terms of who has an advantage, this author wonders if the parody of offerings mean that ultimately the buying decisions will come down to much more mundane factors like who a customer already has existing spending relationships with. Over in China, Baidu has reported that its AI chatbot ErnieBot has seen more than 200 million users, which is roughly double since the last update in December. Bidu's CEO Robin Lee also said that the API for ErnieBot is being used 200 million times every

Starting point is 00:05:32 day. The number of enterprise clients for ErnieBot has reached 85,000. Competition in China is heating up. Reuters writes, recent data shows that rival domestic AI services, particularly the Kimi chatbot, from a 12-month-old Alibaba back startup named Moonshot AI are quickly catching up with ErnieBot. ErnieBot was visited a total of 14.9 million times across its app and website last month, while Kimmy had a total of 12.6 million visits in the same month. And Kimmy was growing much faster, with visits jumping 321.6% in March from February, while the number of visits to Ernie Bot grew more than 48%. Speaking of China, Intel is following the Invidia playbook and launching a set of AI chips with reduced capacities that come in under U.S. export restrictions

Starting point is 00:06:11 for the Chinese market. The two chips are called the HL 328 and the HL 388 and are scheduled to come out in June and September. InVIDIA also apparently has plans for three new China-specific chips as well. Now, fittingly, we will end on this conversation about China and exports. As you will see, it has an integral role in our main episode, which is about G-42 and their new deal with Microsoft. However, that is going to do it for the AI breakdown brief. Next up, the main AI breakdown. Hello, friends. Quick note before we get into the main part of the episode, If you've been listening to the show for the last few months, you know we have been running an education beta. This is a new approach to AI learning that is hyper-practical, focused on getting you actually

Starting point is 00:06:51 using AI tools in minutes, not hours, and certainly not days, based around video tutorials and companion challenges and projects that have step-by-step instructions that make it really easy to try out new AI platforms. And all of this is now culminating in the launch of a new platform, which we're hoping is the most practical and useful way to learn AI that anyone has yet created. Go to B-Super.AI. That's B-super.B.Supor.A.I. Can't wait to see what you think. Attention. A.I. Breakdown listeners. Consensus 2024 marks the 10th gathering for all things crypto, blockchain, and Web 3. However, importantly, this year's agenda will also dive deep into AI-driven transformation. And the speaker lineup includes the leading minds and innovators at the

Starting point is 00:07:34 forefront of this digital renaissance. Don't miss the Consensus AI Summit to cut through the hype to find where true transformation and opportunity lie. Listeners to this show can get 15% off registration with the code AI breakdown. Visit Consensus24.com to learn more. Some of the folks will be at Consensus this year include Guillome Verdun, aka Beth Jzos, founder and CEO of XTropic, as well as spiritual leader of the Accelerationist Movement, Neil Stephenson, co-founder of Lambda 1, and Brendan Ike, the CEO of Brave Software.

Starting point is 00:08:02 Again, go to consensus 2024.com to learn more and get 15% off registration with the code AI Breakdown. Welcome back to the AI breakdown. On the surface of it, Microsoft's new $1.5 billion investment in partnership into G42 is not all that surprising. First of all, G42 is a fast-growing AI company in the United Arab Emirates. It's a region that's strategically positioning itself to be important in the AI space and so it makes sense that Microsoft would want a foothold there. Second, in general, Microsoft is diversifying its set of partnerships in AI.

Starting point is 00:08:34 It's trying to give its Azure business the greatest chance to integrate lots of and lots and lots of different AI solutions for lots and lots of different types of customers. However, when the broader context of G42 and the U.S. tension with China when it comes to AI, the deal starts to look a lot more interesting. First of all, let's talk about what the deal includes. One aspect of it, as I mentioned, is the $1.5 billion investment to buy a minority stake in G42, and that's coming along with a board of director's seat. Microsoft's vice chair and president, Brad Smith, will be joining G42's board of directors.

Starting point is 00:09:05 Second, there is clearly a cloud focus to the deal. Microsoft's announcement blog, for example, writes, With the breadth of Microsoft Cloud and its differentiated AI capabilities, the deal significantly advances G42's strategy of delivering generative AI and next-generation infrastructure and services for a range of customers across financial services, healthcare, energy, government, and education. Foundational to the partnership is G42's trust and commitment

Starting point is 00:09:26 in Microsoft's cloud platform. G42 will expand its existing commitment to deploying Microsoft Cloud offerings, demonstrating confidence in Microsoft as its preferred partner to enhance services and deliver value-added solutions to its customers. With the partnership, G42's data platform and other essential technology infrastructure will migrate to Microsoft Azure. So again, all of this so far is very run-of-the-mill, a big high-leverage deal to try to win position for the Azure business line. One of the additional capacities that is being expanded in Azure is that G42's Arabic-large language model is now going to be available through Azure. Language-specific LLMs, I think, are going to be a big business.

Starting point is 00:10:02 So again, all of this makes sense. One additional big aspect of the deal is that Microsoft and G-42, who will team up for a billion dollar fund for AI developers to boost the region's skill set. So those are all the basics, and if you didn't know anything else, that would be that. Why then are the headlines things like the Wall Street journals, Microsoft ups anti-in AI race with China through stake in Abu Dhabi firm. Or the New York Times, Microsoft makes high stakes play in tech-cold war with Emirati AI deal. For this, we need to go back to the end of November,

Starting point is 00:10:30 when the New York Times ran an extensive story called Inside U.S. efforts to untangle an AI giants ties to China. American spy agencies have warned about the Emirati firm G42 and its work with large Chinese companies that U.S. officials consider security threats. So the TLDR on all of this is that G42 has for some time tried to be neutral territory between the U.S. and China when it came to AI. That was increasingly difficult, however, as they announced bigger and bigger deals. There was a $100 million deal with a Silicon Valley firm to build what they boasted would be the world's largest supercomputer, agreements with pharmaceutical giants like AstraZeneca, and then in October, a partnership with Open AI. However, behind the scenes, American security agencies were convinced that G42 was hiding

Starting point is 00:11:14 just how much it was working with China, wrote the Times. U.S. officials feared G42 could be a conduit by which advanced American technology is siphoned to Chinese companies or the government. The intelligence reports have also warned that G42's dealings with Chinese firms could be a pipeline to get the genetic data of millions of Americans and others into the hands of the Chinese government. The CIA even produced a classified profile of Pang Zhao, the chief executive of G42, who was educated in the United States and renounced his American citizenship for an emirati one. So there are really layers of geopolitical issues here. One is that just in general, the Middle East is an area where the U.S. has been trying to limit

Starting point is 00:11:50 China's influence, broadly speaking. The U.S. has put pressure on Middle Eastern allies to deny Chinese efforts to build military bases. However, over the last couple years, the fight has taken on a distinctly technological edge, including especially but not exclusively artificial intelligence. Now, when the New York Times published this piece, it had been clear that discussions around these issues had been ongoing for some amount of time, and that the discussions were not at the company level,

Starting point is 00:12:13 but were between high-level U.S. officials and their Emirati counterparts. Now, there is a ton in here that's beyond the scope of this show. If you're interested, for example, in the genetic information piece of this, definitely go check it out. But suffice it to say, this article represented the bigger issues with G-42 starting to come to a head. A couple weeks after that piece, G42 started to indicate that they had gotten the picture and that they were focusing firmly on the U.S. A fortune headline for example read, a major Emirati AI company has picked aside in the U.S.-China Tech War.

Starting point is 00:12:42 However, for some in Washington, that was a little bit too much lip service. In January, Wisconsin Republican Mike Gallagher, the chairman of the House Select Committee on the Chinese Communist Party, started pushing for a federal investigation into G42's work. The House panel said that it had evidence that G42 works with blacklisted Chinese Senate. entities, and that its CEO operated a network of Emirati and China-based companies to support China's military and intelligence services. In his letter to Commerce Secretary Gina Raimondo, Gallagher wrote, multiple U.S. companies that develop and sell export-controlled technology and products maintain extensive commercial relationships with G42 and its subsidiaries to include Microsoft Dell and OpenAI. Without restrictions on G42, the hardware and software developed by these

Starting point is 00:13:22 U.S. companies are at significant risk for diversion to G42's PRC-based affiliates, many of which support China surveillance state and human rights abuses. With that continuing pressure, G42 started to move from statements to actions. In February, for example, the company announced that it had sold its stake in Chinese companies, including TikTok's owner Bite Dance. The $10 billion technology investment arm of G42 called the 42X fund told the financial times in February that it had, quote, divested from all its investments in China. While it didn't give specifics to other sources, pointed to the bite dance shares as one of the major parts of the sell-off, and indicated that its stake in TikTok had previously been worth $100 million or more. So that is the background here. G42 is at the very center

Starting point is 00:14:04 of the proxy war for the U.S.'s AI battle with China. That brings us back to this Microsoft deal. The Wall Street Journal writes, relations between the U.S. and the UAE have been strained in recent years over Abu Dhabi's growing ties to China and its technology firms. The agreement between one of America's biggest tech players and Abu Dhabi-based G42 signals a pivot toward Washington for the Gulf State. Now, interestingly, not only was this deal approved by Washington, it seems like the U.S. government actually had a stronger hand than that. The New York Times deal book wrote a piece this morning called How Washington played AI Matchmaker, in which they argued that the White House, quote, laid the groundwork for the deal. That article shared another piece of the deal, which didn't feature prominently in Microsoft's

Starting point is 00:14:44 announcement post, which was that G42 had agreed to strip out components and equipment from Chinese companies like Huawei from its systems. Commerce Secretary Gina Raimondo apparently played a role as a lead negotiator in talks with G42. What's more, the New York Times writes, The Investment is a collaboration between business and Washington. It arose out of dialogue between U.S. officials and tech executives last year over how to encourage business transactions that deepen American interests in important regions and technologies. By joining the G42 board, Microsoft will be able to audit G42's use of its technology. So in many ways, it feels like as G42 was trying to orient itself towards the U.S., it perhaps became a requirement from

Starting point is 00:15:24 the Americans, that they take on some sort of significant ownership stake from a U.S. company. Given preexisting relationships, Microsoft was a likely candidate, and then a couple months later, here we are with this deal. This may seem all kind of small to you, but we haven't really seen this type of collaboration between the Washington, D.C. establishment and the private sector in this way around not just business objectives, but geopolitical objectives, for basically as long as I can remember. Sure, Washington has often had an opinion about the moves that tech companies make, but this level of engagement actually playing a negotiating role, actually setting terms of a deal, shows just how central artificial intelligence is to U.S.

Starting point is 00:16:04 strategic priorities. Really, really interesting stuff. And I'm sure not the last time we're going to see this type of DC private sector collaboration. For now, though, that is going to do it for the AI breakdown. Until next time, peace.

The AI Daily Brief: Artificial Intelligence News and Analysis - Microsoft's $1.5B AI Geopolitical Gambit in the UAE

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.