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Microsoft to invest $1.5 billion in Emirati AI firm G42 for minority stake

FILE PHOTO: 2024 Mobile World Congress in Barcelona

DUBAI (Reuters) -Microsoft is investing $1.5 billion in United Arab Emirates-based artificial intelligence firm G42, giving the U.S. giant a minority stake and a board seat, allowing the two to deepen ties amid the global battle for tech dominance.

As part of the deal, which the two companies said was backed by assurances to the U.S. and UAE governments over security, G42 would use Microsoft cloud services to run its AI applications.

The partnership comes amid Washington's efforts to hobble Beijing's technological advances, with the United States adding four Chinese companies to an export blacklist for seeking to acquire AI chips for China's military. The United States has also been concerned over deepening ties between China and the Gulf states, including the UAE.

Amid U.S. concerns over its relationship with Chinese businesses, G42 had divested its investments in China and began the lengthy task of pulling out Chinese hardware, accepting constraints imposed on it by the United States to work with U.S. companies, it said in February.

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Microsoft and G42, in separate statements on Tuesday, described their assurances to the U.S. and UAE governments as a first of its kind agreement to ensure the secure, trusted and responsible development and deployment of AI. Microsoft said it was binding. The size of the stake Microsoft was taking was not disclosed.

Abu Dhabi sovereign wealth fund Mubadala and American private equity firm Silver Lake hold stakes in G42, whose chairman, Sheikh Tahnoon bin Zayed Al Nahyan, is the UAE National Security Advisor and a brother to the president.

Microsoft President Brad Smith, who will take a seat on G42's board, said: "We will combine world-class technology with world-leading standards for safe, trusted, and responsible AI, in close coordination with the governments of both the UAE and the United States."

The New York Times said the deal places a series of protections on the AI products shared with G42, including an agreement to strip Chinese gear out of the Emirati firm's operations. G42 will cease using Huawei telecom equipment, which the U.S. fears could provide a backdoor for Chinese intelligence agencies, the paper said.

G42 and Microsoft said they would jointly bring advanced AI and digital infrastructure to countries in the Middle East, Central Asia and Africa.

The two companies have collaborated multiple times over the last year, and G42 said it would use Microsoft's Azure data centres as part of its AI infrastructure to boost regional adoption.

G42's Chief Executive Peng Xiao previously worked for company owned by Emirati cybersecurity firm DarkMatter, which hired former spies and was contracted by the UAE cyber security agency.

"Microsoft’s investment in G42 marks a pivotal moment in our company's journey of growth and innovation, signifying a strategic alignment of vision and execution between the two organizations," Sheikh Tahnoon said in the G42 statement.

(Reporting by Disha Mishra in Bengaluru and Alexander Cornwell in Dubai; Editing by Savio D'Souza, Mrigank Dhaniwala and Susan Fenton)