Inside Washington’s Role in Microsoft’s Big AI Deal With G42

An A.I. deal as a diplomatic weapon

A relatively small deal — by Microsoft’s standards, anyway — is leading to big geopolitical ripples on Tuesday.

The tech giant is investing $1.5 billion in G42, an Emirati artificial intelligence company. On its face, that may appear to be just another effort by the tech giant to claim a foothold in a fast-growing A.I. company, as it has done with OpenAI and others.

But details of the transaction reflect a collaboration between the Biden administration and Microsoft to box Beijing out of tech influence in the Gulf, as the U.S. and China compete for A.I. superiority.

The terms of the deal: G42 will be able to sell Microsoft services that use powerful A.I. chips; in return, it will use Microsoft’s Azure cloud services for its A.I. offerings.

More important, G42 agreed to strip out equipment from Chinese companies like Huawei from its systems, eliminating what U.S. officials worry could be a potential backdoor for Chinese intelligence agencies.

It’s meant to bring an influential A.I. company into America’s orbit. G42 is seen as an increasingly important player in the Gulf and beyond: Its chairman is Sheikh Tahnoon bin Zayed, the Emirates’ top security official and a brother of the country’s ruler, and it has struck a number of high-profile business partnerships. Peng Xiao, the company’s C.E.O., was previously associated with DarkMatter, an Emirati spyware company that had employed former spies.

But G42 has had deep relationships with Huawei and other Chinese companies that U.S. officials feared could give Beijing access to advanced technology, Americans’ data and more. (At one point, Biden officials raised the prospect of sanctions on G42.) More broadly, Washington leaders have been worried about Middle Eastern countries playing the U.S. and China off each other.

Over the past year, G42 has bowed to pressure from Washington, agreeing to steps like divesting its stake in ByteDance, the owner of TikTok. “When it comes to emerging technology, you cannot be both in China’s camp and our camp,” Gina Raimondo, the commerce secretary and a lead negotiator in talks with G42, told The Times.

The investment is a collaboration between business and Washington. It arose out of dialogue between U.S. officials and tech executives last year over how to encourage business transactions that deepened American interests in important regions and technologies. As part of the deal, Brad Smith, Microsoft’s president and top diplomat, will join G42’s board, and his company will be able to audit G42’s use of its technology.

“The U.S. is quite naturally concerned that the most important technology is guarded by a trusted U.S. company,” Smith told The Times. Raimondo added that Washington officials were “comfortable that this agreement is consistent with our values.”

There are benefits to Microsoft as well. The company gains a stake in yet another promising A.I. company, as it seeks supremacy over the technology. (Some of those investments, however, are being scrutinized by Washington antitrust regulators.) And it will acquire a foothold to reach more customers, particularly those in Middle Eastern countries eager to spend billions on A.I.

HERE’S WHAT’S HAPPENING

A long-awaited House vote for Israel and Ukraine aid could come this week. Speaker Mike Johnson said lawmakers would vote on three bills that together mirror a $95 billion Senate package, along with a separate measure meant to placate Republican colleagues. But the legislation’s fate is uncertain, as hard-line Republicans oppose funding for Ukraine, while some left-wing Democrats question unfettered aid to Israel.

China’s economy rebounds, beating analysts’ estimates. The surprise 1.6 percent first-quarter G.D.P. gain was helped by strong factory output, as the country’s big investment in manufacturing appears to be paying off. But the world’s second-biggest economy is still suffering from uneven consumer spending, disinflation and a slowdown in its real sector that could hamper growth this year.

Shares in Trump Media sink again. They fell 18 percent on Monday and more than 60 percent since late March, erasing billions from Donald Trump’s paper wealth. The most recent plunge came after the company registered for the potential sale of millions of new shares, spooking some investors. Meanwhile, the Supreme Court will hear arguments on Tuesday that could be key to the former president’s defense in a case tied to his role in the 2021 Capitol attack.

Where megadonors are spending their money

As the race for the White House tightens and control of Congress remains up for grabs, big-name donors poured millions into key races nationwide.

Democrats started the year with a fund-raising lead. But in the past quarter, Republican campaigns and causes have racked up huge donations from wealthy backers as voters prepare for a rematch between President Biden and Donald Trump. A major Trump funding committee said it raised more than $23 million, with support from Kelly Loeffler, a Republican former senator of Georgia, and John Paulson, a billionaire investor.

DealBook combed through the latest quarterly filings with the Federal Election Commission, which were due at midnight. Here’s where the big names put their money:

• Ken Griffin, $32 million. The Citadel founder and Republican megadonor gave millions to Nikki Haley’s presidential campaign. Elsewhere, he spread $11.5 million between Senate and House Republicans, and $10 million to Maryland’s Future, a fund expected to back the Senate bid of former Gov. Larry Hogan of Maryland, a Republican. He also gave $5 million to a fund that backs conservative veterans and $2.5 million to a Midwest Republican group.

• Timothy Mellon, $19 million: An heir to Thomas Mellon’s banking fortune has given $5 million to a fund for Robert F. Kennedy Jr., who is running as an independent, and $5 million to a Trump fund this quarter, as well as gave $5 million to House Republicans and $4 million to a Heritage Foundation fund.

• Jeff Yass, $17.9 million: The billionaire investor is the largest individual donor this federal election cycle, giving more than $46 million, according to OpenSecrets. This past quarter, he shelled out $8 million to a fund tied to Senator Rand Paul, Republican of Kentucky, $6.9 million to school choice funds and $3 million to a Pennsylvania-focused fund. Speculation is high that Yass, whose Susquehanna International Group has stakes in TikTok’s parent, ByteDance and in Trump’s social media company, could also emerge as a big Trump backer.

• Isaac and Laura Perlmutter, $10 million: The former C.E.O. of Marvel, who teamed with the activist investor Nelson Peltz in an unsuccessful Disney proxy battle, and his wife, each gave $5 million last month to a new fund supporting Trump.

• Cameron and Tyler Winklevoss, $4.9 million: The twin founders of the crypto exchange Gemini each gave $2.45 million to Fairshake, a super PAC that seeks to bolster the electoral chances of crypto-friendly candidates. Fairshake and its allies raised about $80 million last year and have spent money against candidates seen as unfriendly to the sector, like Representative Katie Porter, Democrat of California, whose Senate bid failed last month, and Senators Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, both Democrats, banking committee members and thorns in the industry’s side.

Up next: Donors who contributed directly to a presidential candidate (rather than through joint fund-raising committees or super PACs) last quarter face a separate disclosure deadline this weekend.

“My plans are to be a recess monitor for my second grade daughter, practice my violin, go to a bunch of bucket list sporting events and take my very patient wife on some long intended travel.”

— Rohan Patel, Tesla’s outgoing head of policy and business development. He is one of two top executives to depart the electric vehicle maker as it announced roughly 14,000 layoffs on Monday, amid a sector-wide slowdown in sales that has knocked billions off the company’s market capitalization.

A big antitrust fight may loom over Live Nation

After taking on big deals and tech giants, the Biden administration’s antitrust enforcers are said to be preparing their next big fight: Live Nation, the parent company of Ticketmaster, whose lock on concert tickets and promotion faced renewed scrutiny after a Taylor Swift ticket debacle in 2022.

If the Justice Department sues, as The Wall Street Journal reports it is preparing to, it would cap years of scrutiny. Its stock fell more than 9 percent in premarket trading on Tuesday.

Live Nation has long faced complaints about its practices, including high ticket prices, poor customer service and anticompetitive tactics. Ticketmaster now controls more than 70 percent of the market for primary ticket sales at America’s biggest event venues, with exclusive contracts at many of them.

While Ticketmaster has been criticized for decades, its 2010 merger with Live Nation — a combination approved by the Justice Department under the Obama administration — raised concerns to a new level.

The latest inquiry began in 2022, when the Justice Department began examining whether Live Nation was exerting an illegal monopoly over the live music industry. The debacle involving ticket sales for Swift’s Eras Tour increased scrutiny, which led to a Senate Judiciary Committee hearing at which Democrats and Republicans alike sharply criticized the company.

Live Nation has argued for years that it isn’t breaking the law, saying that it faces more competition in ticket sales than ever. Last year, the company agreed to introduce more transparency into the fees that get tacked onto tickets, as part of the Biden administration’s fight against what it calls “junk fees.”

The company is still operating under a legal settlement with the Justice Department as a condition of the 2010 merger that forbids it from threatening venues from losing access to its tours if they opt for alternative ticketing providers.

THE SPEED READ

Deals

• Andreessen Horowitz, the prominent venture capital firm, closed its latest investment funds at $7.2 billion. (Axios)

• International Paper agreed to buy DS Smith, a British maker of packaging material, for $7.2 billion, edging out a rival bidder. (Reuters)

Policy

• Former TikTok employees said that some of the platform’s operations were closely linked to ByteDance, its Chinese parent company, despite assertions to the contrary. (Fortune)

• The Senate Finance Committee questioned Bank of America about $158 million worth of payments it processed that had been made by the private equity mogul Leon Black to Jeffrey Epstein, the registered sex offender. (NYT)

Best of the rest

• Mark Zuckerberg was dismissed as a defendant in about two dozen lawsuits accusing Meta, the tech giant he runs, of addicting children to its services. (Bloomberg)

• How Levi’s and makers of cowboy boots have gotten a sales boost from Beyoncé. (CNN Business)

• Caitlin Clark, the record-breaking college basketball player, was picked first in the WNBA draft by the Indiana Fever. (The Athletic)

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