How Microsoft adds value to its shareholders - the UAE exposure

Microsoft has made a significant strategic investment in?G42, a leading UAE-based artificial intelligence (AI) technology holding company.?This investment amounts to?$1.5 billion?and aims to accelerate AI development and global expansion. How the acquisition adds value? We share our insights.

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Microsoft acquires minority stake in G42, a leading UAE-based AI company

The details of the deal look as follows:

• Amount: Microsoft’s investment in G42 totals? $1.5 billion .
• Purpose: The investment strengthens collaboration between the two companies, focusing on bringing the latest Microsoft AI technologies and skilling initiatives to the UAE and other countries worldwide.
• Board Representation: Brad Smith, Vice Chair and President of Microsoft, will join the G42 Board of Directors.

Strategic Partnership:

• AI Technologies: Microsoft’s investment deepens the reciprocal commitment to the strategic partnership, allowing G42 to run its AI applications and services on?Microsoft Azure.
• Global Reach: The collaboration aims to deliver advanced AI solutions to global public sector clients and large enterprises.
• Regional Impact: G42 and Microsoft will work together to bring advanced AI and digital infrastructure to countries in the Middle East, Central Asia, and Africa, ensuring equitable access to services while maintaining high standards of security and privacy.

Development Fund for Developers:

• The partnership includes the establishment of a?$1 billion fund?to support the development of a skilled and diverse AI workforce. This investment will drive innovation and competitiveness in the UAE and the broader region.

Benefits and Value Added from the deal

The UAE’s demand for cloud computing services is robust, driven by technological advancements, digital transformation initiatives, and the need for scalable, efficient solutions across various industries. According to GMI Research Report, UAE Cloud Commuting Market will grow at an impressive CAGR of 38.2% between 2024-2030.

According to IDC , the UAE is?leading the adoption of public cloud services?within the Middle East and Africa (MEA) region. The country’s?cloud service market?experienced?36.5% year-on-year growth?in 2021. Over the period from 2022 to 2026, the UAE’s public cloud services market is expected to register a?CAGR of 24.7%.

Sovereign Cloud and AI Offering:

• G42 and Microsoft have embarked on a multifaceted plan to provide?sovereign cloud offerings?in the UAE. This offering allows the UAE public sector and regulated industries to leverage new platform capabilities for securing sensitive data. It grants access to the latest cloud and AI features available on?Azure public cloud, all while ensuring compliance with local privacy and regulatory requirements.
• G42’s deep understanding of UAE sovereignty requirements plays a pivotal role in customizing this offering to address specific customer needs.
• The partnership aims to set new milestones for public sector cloud computing security and innovation.

Industry-Specific AI Solutions:

• By combining their expertise, G42 and Microsoft are developing cutting-edge,?AI-enabled industry-specific solutions?in various domains: Health and Life Sciences: Advancing healthcare through AI applications. Energy and Sustainability: Enhancing energy efficiency and sustainability. National Significance Projects: Contributing to significant national initiatives, such as the?COP28 conference?being held in the UAE this year.

Core42:

• G42 has merged three of its existing businesses—G42 Cloud, Inception, and Injazat —to form a new technology entity called?Core42.
• Core42 aims to play a unique role in the technology landscape by providing a holistic platform capable of delivering on the UAE’s digital transformation agenda.?It also leads the export of ICT innovation to international enterprises and governments?.

Expanding Azure Services Footprint:

• Microsoft is expanding its?Azure services footprint?in the UAE through?Khazna Data Centers, a joint venture company between G42 and e&.
• This expansion ensures broader availability of Azure services, benefiting local entities and contributing to the UAE’s technological growth.

How Microsoft adds value to its shareholders via this acquisition – Our View

Microsoft’s strategic investment in?G42?holds significant potential for adding value to its shareholders. Below we summarize potential benefits:

Enhanced Market Position:

• By investing $1.5 billion in G42, Microsoft secures a minority stake in the UAE-based AI company.
• This strategic partnership expands Microsoft’s reach across the Middle East, Central Asia, and Africa, positioning it as a key player in the region’s AI landscape.
• A stronger market presence can lead to increased revenue streams and shareholder confidence.

AI Innovation and Differentiation:

• G42’s expertise in AI aligns with Microsoft’s commitment to advancing artificial intelligence.
• Co-innovating with G42 allows Microsoft to leverage its Azure cloud platform for delivering advanced AI solutions.
• These innovations can enhance Microsoft’s product portfolio, attract new customers, and drive shareholder value.

Generative AI and Infrastructure Services:

• The deal advances G42’s strategy of providing generative AI and next-generation infrastructure services.
• Microsoft’s differentiated AI capabilities and Azure cloud infrastructure empower G42 to create value-added solutions.
• Shareholders benefit from G42’s growth potential and Microsoft’s technology contributions.

Secure and Responsible AI Deployment:

• The partnership includes a binding agreement to ensure secure, trusted, and responsible AI development and deployment.
• Compliance with U.S. and international trade, security, and business integrity laws enhances shareholder confidence.
• Microsoft’s commitment to ethical AI practices reinforces its reputation and attracts socially responsible investors.

Cloud Platform Synergy:

• G42’s trust in Microsoft’s cloud platform is foundational to the partnership.
• Migrating G42’s data platform and technology infrastructure to Azure enhances performance, scalability, and security.
• Shareholders benefit from Azure’s industry-leading capabilities and G42’s expanded services.

Equitable Growth and Emerging Markets:

• Accelerating AI transformation in emerging markets aligns with Microsoft’s global growth strategy.
• Shareholders gain exposure to untapped markets and diversified revenue streams.
• Equitable growth fosters long-term shareholder value.

Current Market Value of Microsoft & Azure

As of now, the?market value of Microsoft Azure?stands at an impressive?$232 billion USD. Azure, launched in 2010, is a versatile cloud computing platform that offers a range of services including infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS).?Its growth rate over time reflects the strong demand for these services worldwide.

This value represents Azure’s contribution within the broader context of Microsoft Corporation.?Speaking of Microsoft as a whole, its current market capitalization is approximately?$3.13 trillion USD.

Revenue growth potential on UAE market

The?Microsoft Cloud?is poised to make a significant impact on the?UAE economy. According to a study by the?International Data Corporation (IDC) , the Microsoft Cloud is projected to generate approximately?US$39 billion?in new revenue over the next four years in the UAE.?This substantial revenue will be driven by the Microsoft Cloud ecosystem, which includes?Microsoft, its?partners, and its?cloud customers.

Below we highlight the main estimates made by IDC:

• Total Revenue: The four-year accumulated total for new revenue from the Microsoft Cloud in the UAE is estimated to be?US$39 billion.
• Data Center Regions: Approximately?16.6%?of this benefit will come from the cloud data center regions in?Abu Dhabi?and?Dubai.
• Job Creation: The Microsoft Cloud is expected to create close to?100,000 jobs?in the UAE, either through direct employment or by indirectly generating jobs in other organizations.
• Partner Revenues: Microsoft partners can expect to make?US$6.40?for every dollar generated by Microsoft through its UAE cloud locations in 2023. By 2026, this figure is projected to increase to?US$8.49. In our view, the acquisition of the G42 should stimulate revenue growth even further.

For more detailed insights please do not hesitate to contact us .