Will China’s latest AI capabilities jeopardize Gulf-based investments in American AI companies?

Seeking to diversify their economies from oil revenue, countries across the Gulf Region have set out for new ventures on the horizon, particularly in the realm of AI technology. In the last near decade, Saudi Arabia and the UAE have opened investment funds and launched AI initiatives, building relationships with US-based companies while treading carefully with US regulations calling into question these countries and their companies’ ties with China. Do the latest updates in China’s AI advancements now jeopardize opportunities for American companies seeking investments from Gulf countries?

In the last few weeks, DeepSeek, a Chinese AI startup company, released multiple AI models and a chatbot whose performance rivals ChatGPT and other US-based AI programs. DeepSeek’s latest release of the R1 model caused quite a stir in international markets following news that the company was able to launch its open source AI search engine while reportedly spending only $5.6 million on computing power. The lower costs of development were accredited to reports that DeepSeek’s models used far fewer AI chips than its rivals.

In addition, DeepSeek’s decision to make the program’s code and a technical explanation of the program free for users to access created an additional buzz as it’s become an enticing value add for American start-ups and AI researchers. In contrast, American AI companies such as OpenAI, Oracle, and Microsoft continue to keep their research and programming private.

China’s rapid rise in the AI tech industry has created a new frontier in the ongoing US-China tech war, and threatens to challenge the USA’s dominance in AI technology despite US sanctions and export restrictions targeting China’s access to AI computer chips and program codes. Rather, DeepSeek’s recent release has exemplified that Chinese companies, developers, and researchers possess the capabilities to engineer comparable AI models for a fraction of the cost.

For foreign investors watching the developments of US-China “tech arms race” closely, will the latest AI model releases from DeepSeek and other Chinese companies threaten to divert Saudi Arabia and the UAE’s investments in American companies?

To answer this question a bit better, it’s important to understand these countries’ latest investments and initiatives:

Saudi Arabia

The country’s ambitions in tech were formally launched during Crown Prince Mohammed bin Salman’s release of Vision 2030 in 2016, detailing the country’s goals to diversify its largely fossil fuel based revenue to other sectors including technology, healthcare, tourism, and real estate development. In 2024, the Kingdom launched Alat, a $100 Billion investment fund tasked with advancing industrials and electronics. In February 2024, Alat announced a $200 million partnership with Dahua, a Chinese surveillance technology company that was previously sanctioned by the US. Around the same time, New York Times reported that Saudi Arabia’s Public Investment Fund was in talks with Andreessen Horowitz, a Silicon Valley venture capital firm, as well has other financiers to invest about $40 Billion in American AI companies, signaling the country’s interests in putting itself on the map as an emerging leader and competitor in the global AI tech industry.

UAE

The UAE is also looking to become a competitive global power in the world of AI and diversify its economy to reduce dependence on oil and gas. The country created an AI ministry in 2017, and has since deepened ties with international corporations and has made significant investments domestically and internationally. The UAE-based G42, a growing AI conglomerate founded in 2018, has been building relations with American companies such as Microsoft, OpenAI, and Oracle to help build a supercomputer. In March 2024, the UAE announced MGX, a $100 billion state-backed AI technology and tech investment firm. Several months later, MGX became an investor in a $6.6 billion funding round for OpenAI, an American company. 

Both Saudi Arabia and the UAE have felt the pressure of the US government’s efforts to maintain America’s dominance in the AI software and hardware market. For example, the UAE AI company G42 announced plans in late 2023 to cut down the company’s use of Chinese hardware to maintain access to American-made AI chips following reports that US intelligence officials issued warnings about G42’s collaboration with Chinese firms including Huawei.

The US has deployed both export restrictions and supported investment deals as means to maintain its influence with Gulf-based investors, and to prevent countries across the Middle East from sharing sensitive research, hardware, and development with China. This is evident in the Biden Administration’s release of the exports restrictions policy on AI technology and hardware in 2023, and reaffirmed later in the Administration’s final week on January 13, 2025 through the release of the “Regulatory Framework for the Responsible Diffusion of Advanced Artificial Intelligence Technology” . The latest version divides countries into 3 categories, with Saudi Arabia and the UAE being listed within the “middle tier” category, meaning these nations will require explicit authorization from the US government to receive exports of AI technology and chips. It remains to be seen whether the Trump Administration will uphold this regulation, or change it.

In addition, the US government’s “carrot” approach is evident through negotiations facilitated by the White House in order to broker a deal between Microsoft and G42, the UAE’s investment fund, valued at $1.5 billion. While this occurred under the Biden Administration, Trump’s support for major AI companies may signal a continuation of the US government’s involvement in future international tech deals. In his first few days in office, US President Donald Trump reaffirmed the government’s backing of American AI infrastructure by announcing the launch of the Stargate project, a private joint venture between the US government and major corporations including OpenAI, Oracle, and Softbank, with investments from the UAE’s MGX.

Yet, compared to the near $500 billion estimated price tag of boosting AI infrastructure headed by Silicon Valley-based tech companies, DeepSeek’s alleged production may throw a wrench in investment projects such as Stargate, or other American ventures, and require a reevaluation of the US government’s “carrot and stick” approach to prove they can provide a return on investment for Gulf capital funds and companies.

Saudi Arabia and the UAE may take these latest developments in the US-China tech war to bring their own conditions to the table with American counterparts. US companies and the current administration may face new contingencies and counter negotiations with cash-strapped Saudi, and UAE investors, while also needing to exert more pressure on these countries to prevent divestment. This can include new approaches to US exports policies to include these kingdoms in the exemptions category,  reassurance from American tech companies and their leaders regarding their production and development costs, and the US agreeing to negotiations for investments in other sectors that benefit the Gulf economies.

While it’s too early to tell whether Gulf investors are looking to redirect their investments, 2025 has already kicked off as a certainly decisive year in the US-China tech war, with investment giants Saudi Arabia and the UAE likely to use the shift in power dynamics to their advantage. Meanwhile, American companies may take the latest developments by Chinese AI companies as a sign that they will need to maintain a stake in US foreign policy in the Gulf region to ensure they can continue securing the backing of Gulf-based capital. 

Saudi Arabia and the UAE both greatly benefit from friendly ties with the US and are unlikely to push significant boundaries with the Trump Administration at the moment as both countries can gain from the new administration’s eagerness to conduct business and investment dealings across various sectors. However, they may be seeking to cash in on this decisive moment and looking into investment opportunities with Chinese companies producing promising and cost-effective AI projects. Now is the time to see whether current or amended US regulations and strategic diplomatic efforts can effectively garner investments from Saudi Arabia and UAE, and maintain these kingdoms’ commitments to divesting from China.