Saudi Arabia and UAE Aim to Build AI Chip Design Hubs Amid Global Tech Rivalries

Yasir al Rumayyan, governor of Saudi Arabia’s $925 billion Public Investment Fund, envisions the kingdom as a significant hub for artificial intelligence (AI). Unlike some speculative initiatives, al Rumayyan’s vision is grounded in practical steps, contingent on attracting top-tier AI expertise and securing backing from influential figures such as OpenAI CEO Sam Altman and SoftBank Group founder Masayoshi Son.

Creating a robust AI ecosystem from the ground up requires several critical components: semiconductor manufacturing capabilities, data centers for processing vast datasets, intellectual property (IP) for advanced chip designs, and the specialized knowledge to develop AI models. While Gulf states may not need to master every element internally, they possess unique advantages and face distinct challenges.

Data centers, essential for training and running AI models, are energy-intensive, with energy costs accounting for approximately 60% of operational expenses. Saudi Arabia and the UAE benefit from abundant low-cost energy sources, including fossil fuels and significant potential for solar power expansion. This energy advantage has attracted substantial investment interest from Western asset managers like Blackstone and Brookfield. For example, Amazon committed $5 billion to Saudi data centers on March 4, signaling confidence in the region’s infrastructure potential.

However, semiconductor manufacturing poses a more complex challenge. Chip fabrication plants demand large quantities of water—a scarce resource in the Gulf. Saudi Arabia’s annual water demand exceeds its supply by a factor of nine, according to World Bank data. Moreover, the global semiconductor market is dominated by Taiwan Semiconductor Manufacturing Co. (TSMC), which holds nearly 60% of the market share. Consequently, Gulf states are more likely to outsource chip production rather than build domestic foundries.

The critical bottleneck lies in chip design. The Gulf region is caught amid an AI technology race between the United States and China. In August, the US imposed restrictions on shipping high-performance chips—manufactured by TSMC for Nvidia—to Middle Eastern countries. These measures aim to prevent Chinese firms from circumventing export controls via the Gulf.

Such restrictions jeopardize Gulf ambitions. Advanced chips are vital for accelerating AI software development. For instance, a UAE research institute developed Falcon, an Arabic-based open-source AI model trained on 384 Nvidia A100 chips over two months. Falcon outperformed Meta’s Llama 2 and matched Google’s PaLM 2 in various tasks. To sustain and enhance such achievements, continuous access to cutting-edge chips is indispensable.

In response, Saudi Arabia and the UAE have pledged $200 billion toward AI-related development, focusing on cultivating indigenous AI chip design capabilities. Developing IP within the Gulf would allow Riyadh and Abu Dhabi to send chip designs to TSMC without US-imposed restrictions, circumventing current geopolitical hurdles.

Yet, designing advanced chips demands deep industry expertise to avoid pitfalls such as IP infringement. The Gulf currently lacks sufficient homegrown talent in this specialized field. To bridge this gap, the region must attract global AI experts from established tech hubs like Japan and California. Despite incentives such as UAE’s golden visas, tax rebates, and Saudi Arabia’s recent relaxation of alcohol regulations, recruiting top talent remains a formidable challenge.

This is where influential figures like Masayoshi Son and Sam Altman play pivotal roles. Son, with his extensive experience in chip design through SoftBank’s $130 billion investment in UK-based Arm, is facilitating the establishment of 50 SoftBank-backed startups in Saudi Arabia. Bloomberg reported that Son aims to raise $70 billion from Middle Eastern investors to fund AI chip design ventures.

Similarly, Altman envisions attracting up to $7 trillion from investors including the UAE government, according to the Wall Street Journal. Saudi Arabia is also negotiating a partnership with venture capital firm Andreessen Horowitz to invest $40 billion in AI, as disclosed by sources to the New York Times. These leaders share a common goal with al Rumayyan and UAE officials: to develop high-tech chip designs independent of Nvidia’s dominance.

However, there is a risk that Altman and Son might use Gulf capital to build advanced chip facilities elsewhere, which would not fulfill the vision of a domestic AI hub. This concern echoes the legacy of SoftBank’s $100 billion Vision Fund, heavily backed by Saudi’s Public Investment Fund and UAE’s Mubadala, which has yielded a modest 4% internal rate of return over seven years. Additionally, SoftBank’s sale of its 5% Nvidia stake in 2019 for $3.6 billion pales in comparison to the shares’ current $113 billion valuation.

Nonetheless, if Altman and Son endorse the Gulf as a base for an Nvidia competitor, their influence could attract AI talent from Silicon Valley and beyond. While the rapidly evolving AI landscape offers no guarantees, such a development would significantly advance al Rumayyan’s aspiration of establishing a thriving AI hub in the Middle East.