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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is the author of ‘Chip War’
If artificial intelligence systems transform the global economy, then the data centres that train them are the factories of the future. Governments around the world see AI-capable data centres as a strategic resource — one they are racing to control.
The idea of high-powered computing as strategic is nothing new. During the cold war, the US permitted supercomputer sales to the Soviet Union only if they were used for weather forecasting, not nuclear simulations. These rules were enforced by requirements that the Soviets accept permanent foreign monitors and even hand over supercomputer data for analysis by US intelligence.
Like supercomputers, the AI systems being developed today have both civilian and military capabilities. They may optimise food delivery apps but they can also analyse satellite photos and direct drone strikes. It’s not unreasonable to bet that control over AI data centres will have political as well as economic implications.
All advanced AI systems are developed in data centres full of high-end chips such as Nvidia graphics processing units and high-bandwidth memory semiconductors. Cutting-edge AI chips are already subject to US export controls and advanced memory chips may soon be added to the list. Adversaries like China have received blanket bans that prevent them from accessing restricted US chips and are developing their own.
It should not therefore come as a surprise that more countries want guaranteed access to AI technology via data centres that are built on their own soil.
Saudi Arabia and the UAE have made no secret of their ambition to become AI hubs by investing in vast data centre infrastructure. Kazakhstan wants to build an AI data centre and train Kazakh-language models. Malaysia is experiencing a data-centre boom, with huge new investments by both US and Chinese companies.
US cloud companies see a lucrative opportunity. They argue that if they do not take contracts from foreign governments that are ploughing billions of dollars into “sovereign AI” infrastructure, then China will. Washington understands that US tech companies need international markets to retain the scale that underpins their economic advantage.
American diplomats have data centres on the mind, too. There’s no better way to lock out Chinese tech than to get other countries on your cloud. When US President Joe Biden hosted Kenyan President William Ruto in May, the White House proudly announced that Microsoft was building a major new data centre in Kenya to offer cloud computing services.
What the White House didn’t mention was that Microsoft would develop the Kenyan data centre alongside G42, the UAE-owned tech company that has a history of technology partnership with Chinese companies. Earlier this year, Microsoft announced it would invest $1.5bn in G42.
Security hawks in Washington worry that deals such as this risk compromising their control over AI tech. They note long-standing ties between G42 and Chinese tech companies like Huawei. Kevin Xu of Interconnected Capital suggests that the chip war may be about to be followed by a cloud war.
Whatever safeguards Washington demands on the Microsoft-G42 deal will be seen as a template for future international data centre projects. Will the US government verify compliance? Could it demand sharing of data, as it did during the cold war? Such safeguards would address American security concerns but would make countries already wary of US restrictions even more nervous.
This matters because the US has based its tech competition with China partly on the question of trust. Who would you rather trust with your telecoms, US officials have asked: European firms or Huawei?
Not coincidentally, Huawei is redoubling efforts to build its own cloud computing business for customers in China and abroad. The head of Huawei Cloud recently argued China should “shift the demand for AI computing power from chips” to the cloud, where China has vast scale and no difficulty building the electricity infrastructure that AI data centres require.
Whether companies such as Huawei can compete without the most advanced chips remains to be seen. The fact that China is importing vast numbers of Nvidia’s H20 chips — deliberately downgraded to comply with US restrictions — suggests it will not be exporting its own AI tech soon.
Chips, clouds and data centres are intrinsically interlinked, so long as high-end, export-controlled chips give cloud computing companies the ability to deploy AI efficiently. The tech competition that started with silicon is now intruding into a new layer of the computing stack.
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