Tech investor Jack Selby warns that a potential withdrawal of investments by Middle East sovereign wealth funds could siphon hundreds of billions of dollars from the artificial intelligence boom, jeopardizing critical data center projects.<\/p>\n
Selby, managing director of Peter Thiel\u2019s family office, Thiel Capital, highlighted that Middle East investors, encompassing sovereign wealth funds and government entities, are responsible for approximately a quarter of global AI investments pledged over the next five years. He cautioned that if the conflict in Iran persists, leading countries like the United Arab Emirates and Saudi Arabia to redirect their investments towards domestic reconstruction, the resulting capital drain could significantly impact data centers and both public and private technology firms.<\/p>\n
“Markets have, in my opinion, underestimated the Middle East region’s crucial role in capital expenditure for AI and its infrastructure,” Selby stated in an interview with CNBC. He added, “Should the Middle East begin to halt or cancel some of these projects, the market impact could be far more substantial than currently anticipated.”<\/p>\n
Selby’s caution carries significant implications for high-net-worth investors, family offices, and funds engaged in the AI sector. Following a Wall Street Journal report this week detailing OpenAI’s missed revenue targets, which unsettled tech and chip stocks, Selby pointed to the Middle East as an additional funding risk, given AI companies’ increasing reliance on the region for capital.<\/p>\n
Oracle, Nvidia, and Cisco are collaborating on OpenAI\u2019s campus in the UAE, aiming to develop 5 gigawatts of capacity. Microsoft has also announced plans to invest $15 billion in the UAE by 2029. The sovereign wealth funds of the UAE and Saudi Arabia have emerged as pivotal investors in private AI ventures, with OpenAI reportedly having sought $50 billion from major regional funds earlier this year.<\/p>\n
Selby estimates that half of the Middle East’s AI funding is allocated to data centers within the region, while the remaining half supports global projects and data centers. He noted that Middle Eastern funds and companies have already begun canceling various shipping and business contracts by invoking force majeure, with the significant concern being a potential wave of data center cancellations.<\/p>\n
“Markets appear to be underestimating the gravity of this situation,” he remarked. “It’s highly volatile. I sincerely hope it returns to some form of normalcy soon. However, it seems to me that markets are not adequately pricing in this volatility and risk.”<\/p>\n
Beyond geopolitical conflicts, Selby also highlighted a broader risk for AI: overinvestment and rampant speculation. Drawing parallels to the dot-com bubble, he observed that investors and founders are indiscriminately inflating the valuations of AI and infrastructure companies. He pointed out that the current AI boom is consuming substantially more capital, with leading hyperscalers projected to spend over $700 billion this year, suggesting that any wealth destruction could far exceed the losses experienced during the dot-com bust.<\/p>\n
“AI is undeniably a revolutionary technology,” he affirmed, “but it also has the potential to become an exceptional bubble. While there will be significant winners, there will also be substantial losers, whose losses will be orders of magnitude greater than anything previously witnessed. The AI bubble, upon bursting, could involve losses at least one, possibly two or three, zeros larger than the dot-com bubble, amounting to tens, if not hundreds, of billions of dollars.”<\/p>\n
He used Google as an example from the dot-com era, noting how it emerged to disrupt the business models of early search engines like Ask Jeeves, Infoseek, and AltaVista, whose values investors were inflating. Selby suggested that similar disruptions could befall today\u2019s AI industry leaders.<\/p>\n
Selby’s AI investment strategy focuses on avoiding crowded markets. Through a second fund he is launching at Copper Sky, his Arizona-based VC firm, Selby aims to invest in technology companies located outside of California, New York, and Massachusetts. He explained that tech firms in these three states, particularly those within the Stanford University and MIT clusters, disproportionately attract capital and attention, implying that superior value opportunities exist elsewhere.<\/p>\n
“Over 90% of all venture capital investment, an all-time high, has flowed into California, New York, and Massachusetts,” he stated. “The positive aspect is that outside these three states, in the remaining 47, investment opportunities and deals are significantly less expensive, which is precisely our focus.”<\/p>\n
Selby refrained from providing extensive details about Thiel\u2019s family office, only noting that Thiel prioritizes investing in exceptional founders over specific industries. Thiel Capital, recognized on the Inside Wealth Family Office 15 list of most active family office investors, boasts a diverse portfolio, including investments in German drone manufacturer Stark, gene therapy startup Kriya Therapeutics, AI hiring company Mercor, and space research firm Varda.<\/p>\n
However, as both a family office director and head of a VC fund that secures capital from family offices, Selby identified direct investments as the most significant error many family offices are making today. A Citibank survey from last year revealed that seven out of ten family offices have engaged in direct investments in private companies, bypassing traditional funds.<\/p>\n
Selby acknowledged the rationale behind family offices pursuing independent investments, attributing it to the poor performance and lack of distributions from private equity and venture capital funds. He asserted that two-thirds of venture capital firms are “zombie VCs,” failing to raise or return capital, and ought to cease operations.<\/p>\n
“Family offices are deeply frustrated with entities like ours, who haven’t been returning their capital, so why wouldn’t they attempt it themselves?” Selby questioned. “They couldn’t perform any worse than many VCs have in terms of making investments, failing to return money, and merely showing paper gains.”<\/p>\n
Concurrently, he argued that typical family offices often lack adequate training in assessing, valuing, and restructuring private companies. He suggested that many ultra-wealthy investors are driven more by status and peer pressure than by the pursuit of disciplined returns.<\/p>\n
“When these affluent individuals attend their Manhattan cocktail parties, they feel compelled to have something engaging to discuss,” he explained. “With all their peers conversing about direct investments, they feel obligated to contribute to the conversation, leading them to follow suit. A Greek shipping magnate residing in Manhattan, for instance, may know nothing about rocketry, yet invests in SpaceX simply to have an interesting topic for a sophisticated cocktail party.”<\/p>\n
#AIInvestment #MiddleEastCapital #TechBubble #DataCenters #SovereignWealthFunds #VentureCapital #MarketRisk #AIInfrastructure #GlobalEconomy #JackSelby<\/p>\n","protected":false},"excerpt":{"rendered":"
Tech investor Jack Selby warns that a potential withdrawal of investments by Middle East sovereign wealth funds could siphon hundreds of billions of dollars from the artificial intelligence boom, jeopardizing critical data center projects. Selby, managing director of Peter Thiel\u2019s family office, Thiel Capital, highlighted that Middle East investors, encompassing sovereign wealth funds and government […]<\/p>\n","protected":false},"author":2,"featured_media":14948,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[],"class_list":["post-14947","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-middle-east-news"],"_links":{"self":[{"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/posts\/14947","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14947"}],"version-history":[{"count":0,"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/posts\/14947\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=\/wp\/v2\/media\/14948"}],"wp:attachment":[{"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14947"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14947"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fajr.news\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14947"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}