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Gulf seizes AI opportunities

30 May 2025

 

This package also includes: Data centres churn investments

Opportunities to build digital infrastructure – mainly data centres – to support the Gulf’s ambitious artificial intelligence (AI) initiatives jumped in value to about $80bn in mid-May, up from around $20bn at the end of April, thanks to the gigawatt-scale AI campuses announced during US President Donald Trump’s Gulf visit.

These projects provided the final piece of a puzzle relating to the massive power generation capacity buildout in Saudi Arabia and the UAE, which have been overhauling their electricity systems in line with their energy diversification, economic expansion and net-zero targets.

The planned 5GW AI campus in Abu Dhabi is expected to occupy 26 square kilometres of land when completed. Experts say that in countries with more temperate weather, such a facility would require power equivalent to the consumption of nearly three million homes.

“This is as much a story about electricity as it is about AI,” Karen Young, senior research scholar at Columbia University’s Centre on Global Energy Policy, tells MEED.

She adds that the UAE leadership was “extremely prescient” to invest in nuclear power many years ago, perhaps understanding that a surplus of electricity would be key to future growth and industrial policy.

“But these things are expensive, and are easier to permit and build in the UAE because of the concentration of funding and decision-making,” she says. “It's proving a major advantage in the AI race and construction of data centres.”

Attractive asset class

Data centres are often considered part utility assets – similar to delivering gas, electricity, water and telecoms services – and part real estate assets, due to the rents they yield from tenants.

“Yet a lot of the talk … now concerns how investors look at data centres as assets,” a partner at an international law firm with an office in Riyadh says, “because they are neither utility nor real estate”.

However they are defined, the gap in digital infrastructure to support AI advancements is driving investments in data centre projects in the Middle East.

“The opportunity is ripe,” says Sherif Elkholy, partner and head of Middle East and Africa at UK-based private equity and investment firm Actis.

In addition to the sovereign wealth funds in Saudi Arabia and Abu Dhabi, family offices such as Saudi Arabia’s Vision Invest and international private equity firms are getting their feet wet in the rapidly expanding Gulf data centre market.

Actis, for example, is looking at credible local partners, with a platform or portfolio of operating as well as greenfield assets. US-based KKR acquired a stake in UAE-based Gulf Data Hub earlier this year.

“Historically, the region has been an exporter of capital, but today there is a concerted effort to attract foreign direct investments, particularly into Saudi Arabia. The strategy now is how can the region become an importer of value-added capital to support their 2030 visions?” says Elkholy.

Part of the answer lies in opening the sector to private investors and capital. According to Elkholy, the Middle East has very ambitious energy transition, digital infrastructure, desalination and district cooling projects, and the private sector is now playing a central role in delivering these.

“The mood of international investors has been to avoid risks due to global uncertainties, such as we have now, but the reality is there is a major infrastructure gap, and addressing this, especially given the 2030 targets, requires private sector participation.”

Data sovereignty

Uncertainty over data sovereignty issues across the Gulf states is yet another issue investors have had to grapple with.

Although the GCC countries have had stringent data localisation laws in place for almost a decade now, that does not seem to have dampened growing investments in data centre projects in the region, according to Nic Roudev, who leads UK-based legal firm Linklaters’ TMT practice in the Middle East.

“While data localisation requirements prevent the most efficient operational configurations, where data centres capacity is deployed in one country to service demand across the entire region, it also presents hyperscalers with opportunities to build out robust operations in each of the major GCC countries,” says Roudev.

This allows firms to take advantage of incentives for local presence, such as access to government procurement contracts and financing opportunities.

“Demonstrating commitment to the particular country’s economy by establishing and growing local operations also allows data centre investors to build durable strategic partnership relations with regulatory and government authorities, which can lead to a decrease in long-term regulatory and business uncertainty,” the executive says.

The heat and climate effects will continue to be a thorn for future Gulf data centre development and investments
Karen Young, Columbia University’s Centre on Global Energy Policy

Improving regulations

It's not all perfect, though, Young suggests, citing that the heat and climate effects will continue to be a thorn for future Gulf data centre development and investments.

“There is also the rather poor track record of exporting, trading and sharing electricity within the UAE and the GCC, and thinking about export to third countries… so that makes the idea of data centres and even data traffic via cables a little more complicated,” she explains.

From a regulatory viewpoint, Roudev says the main unique risk factors that data centre investors in the GCC typically have to wrestle with stem mostly from the usually non-transparent and frequently hard to predict legislative and regulatory rule-making and enforcement.

However, Roudev also notes that “in recent years there has been a marked trend in both the UAE and Saudi Arabia for increasing transparency by opening draft laws and regulations to public consultations and actively soliciting input from key industry stakeholders.”

A good example of this in Saudi Arabia has been the development of one of the key regulatory instruments for cloud computing services, which went through “a series of sudden and significant revisions, and the data protection law, which underwent unexpected but considerable revisions after remaining suspended for a year”.

Regulatory enforcement actions in the GCC, which have traditionally not been publicised, have also shifted, with an evident attempt in recent years to increase transparency and predictability of enforcement by authorities in both countries, concludes Roudev.

 Data centres churn investments

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Jennifer Aguinaldo

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