4/11/24, 10:13 AM Race for AI Supremacy in Middle East Is Measured in Data Centers

www.bloomberg.com /news/articles/2024-04-11/race-for-ai-supremacy-in-middle-east-is-measured-in-data-centers

Race for AI Supremacy in Middle East Is Measured in Data

Centers
Marissa Newman, Mark Bergen, Olivia Solon ⋮ 9-11 minutes ⋮ 4/11/2024

One of the best places to view the Gulf states’ unfolding rivalry over artificial intelligence is inside an unmarked
building in an industrial park near a golf course on the outskirts of Dubai. The windowless facility is cool and
extraordinarily clean. Upon entering, guests step onto sticky blue floor mats designed to prevent stray sand
particles from making their way inside. Like the scorching heat outside, any speck of desert dust could be
hazardous to the multimillion-dollar equipment stored within.

The 23,648-square-foot complex opened in September, 18 months after construction began. It’s the fourth
facility in the United Arab Emirates operated by Equinix Inc., a data center developer based in Redwood City,
California. The company is also weighing expansion into neighboring Saudi Arabia.

Saudi Arabia and the UAE both want to become the regional AI superpower, and their budding rivalry has
kicked off a race to build expensive desert data centers to support the technology. Data centers alone won’t
transform any country into an AI heavyweight, but no country can become one without them. Countries want the
facilities within their borders for technological reasons—being close to customers can ease access to services
and speed it up—and for geopolitical reasons, because the valuable data housed in the servers will be subject
to local regulations and insulated from foreign meddling.

In Saudi Arabia, where the economy still relies heavily on hydrocarbons, AI tech is part of Crown Prince
Mohammed bin Salman’s Vision 2030 strategy, which aims to identify new revenue sources. It has launched
major research centers and ministries devoted to AI and produced large-language models similar to OpenAI
Inc.’s ChatGPT, as has the UAE. And both counties are hoarding thousands of customized chips, according to
the Financial Times. This week, Bloomberg reported that OpenAI chief executive officer Sam Altman recently
met with government officials and investors in the UAE to discuss how the private sector can work with
countries to support large-scale AI infrastructure.

In early March, Abu Dhabi announced an AI investment fund that could swell to $100 billion within a few years,
and Saudi Arabia’s sovereign wealth fund is in talks with venture capital powerhouse Andreessen Horowitz
about allocating as much as $40 billion to AI investments. “The region is business-friendly,” says Kamel Al-
Tawil, Equinix’s managing director for the Middle East and North Africa. “The economy is strong. Power prices
are stable. We’re seeing a lot of momentum.”

The Gulf countries lag Western Europe in data centers. At the end of 2023 the UAE had 235 megawatts of data
center capacity and Saudi Arabia had 123 megawatts, compared to Germany’s 1,060 megawatts, according to
research firm DC Byte. To close the gap, the UAE is planning to expand capacity by 343 megawatts, and Saudi
Arabia says it wants to add 467 megawatts over the next few years.

The economic stakes are high. A recent report from PwC estimates that by 2030 AI will contribute $96 billion to
the UAE’s economy and $135 billion to Saudi Arabia’s, putting the two states behind only China and North
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America as regions where AI will have the greatest impact on gross domestic product. Many observers also
describe an unspoken antipathy between Saudi Arabia and the UAE—even as officials deny any rivalry exists.
“I cannot stress this enough: I don’t think Saudi Arabia is ever a threat to the UAE, and I don’t think the UAE is
ever a threat to Saudi Arabia,” says Omar Al Olama, the UAE minister of state for artificial intelligence.

The UAE is smaller, but it has several advantages. It started building data centers more than two decades ago
as part of its Dubai Internet City initiative, which also involved innovation centers and office space, and has 52
data centers in operation, according to DC Byte. Colm Shorten, a senior director at Jones Lang LaSalle Inc.,
which operates data centers in the region, says the UAE is the most tech-savvy of the Gulf states thanks to its
willingness to try new techniques and equipment. “It’s the place to be, and it will be for the next several years,”
he says.

Central to the Emiratis’ AI efforts is the G42 tech conglomerate, chaired by national security adviser Sheikh
Tahnoon bin Zayed Al Nahyan. G42 is ambitious—it’s working with Cerebras Systems Inc., a startup based in
Sunnyvale, California, on customized chips to compete with Nvidia Corp.’s. Its data center unit, Khazna,
operates 23 in the country and has another seven under construction. Some of these facilities will be devoted to
hosting cloud servers for Microsoft Corp., one of G42’s partners. “Our focus today is, for sure, developing one
of the largest data center clusters in the world right here in the UAE,” says Peng Xiao, G42’s CEO.

Saudi Arabia, by contrast, has 60 data centers, according to DC Byte, but many have lower power capacities
than the Emirati facilities. Nearly half of its complexes were built by Center3, a subsidiary of the kingdom’s
largest telecommunications company. Chinese tech giants Alibaba Group Holding Ltd. and Tencent Holdings
Ltd. also operate data centers in the country, and luxury real estate developer Damac Properties Dubai Co. has
pledged to spend $600 million on data centers there. Damac didn’t respond to a request for comment on its
plans. In March, the kingdom announced commitments from tech companies including Amazon.com Inc. to
invest $10 billion in data centers.

Yet Saudi Arabia’s politics—as well as its strict rules governing cybercrime and data protection—have been
blamed for discouraging multinationals from working in the country. When Silicon Valley giants Amazon and
Google announced plans in late 2020 to expand cloud-computing operations in the kingdom, the news was met
with fierce criticism from civic organizations over the country’s human rights record. Anthropic PBC ruled out
Saudi Arabia’s participation in its coming financing round because of what it described as national security
concerns.

But Saudi Arabia offers lower energy rates for large cloud providers. The UAE has held “lots of discussions”
about a similar subsidy, according to Al-Tawil, the Equinix executive, but nothing concrete has been announced.
The UAE’s government media office didn’t respond to a request for comment. Saudi Arabia is also considering
plans that would make it easier for foreign companies to secure approval and licensing to build digital
infrastructure. Were those to move forward, it could mean the country “will be ahead by 2030,” says Carl
Roberts, a veteran industry adviser with Dubai-based Hadaara Consulting.

The biggest challenge may be just ensuring that the heat-producing, water-guzzling computing facilities needed
for advanced AI can operate effectively in the desert. The latest chatbots and AI models are computationally
intensive. Equinix’s Al-Tawil estimates that the servers needed to run advanced AI models require up to eight
times as much electrical power as those used for corporate email or cloud data storage.

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When servers use that much energy, the equipment gets much hotter much faster, which can lead to expensive
outages or even damage. Many operators in the Gulf are turning to novel techniques such as liquid cooling, a
method of chilling the equipment directly rather than reducing the temperature of the surrounding air. Other
developers have toyed with a more experimental tactic known as immersion cooling, in which servers are
submerged into tubs of coolant.

Using unproven methods can be costly, especially when experienced technicians aren’t readily available. “You
need hundreds of gigawatts of data center power for AI, and the infrastructure isn’t there,” Roberts says. “We’re
a long way from having these big data centers where AI is the focus.”

Once those data centers do go up, there’s still the daunting task of creating a tech ecosystem from scratch.
Mechanical engineers, facility managers and other kinds of technicians are scarce in the Gulf, says Davide
Ortisi, head of the consulting firm Data Center Nation, who called the skills shortage a “massive problem.” The
UAE and Saudi Arabia have tried to attract American and European startups with promises of computing
resources and tax breaks, but only a handful have taken them up on the offers.

So far, none of these challenges has deterred Equinix. The company’s newest Gulf facility is kept at moderate
temperatures year-round, with servers loudly exhaling gusts of hot air. While temperatures outside frequently
climb past 110F in the summer, during a visit in milder February, DX3 was fairly empty, with just a handful of
server lockers in the cavernous hall. Equinix expects that will change. It’s already leased the land next door. —
With Abeer Abu Omar, Matthew Martin, and Zainab Fattah

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