Markets are underpricing the risk of Middle East pullback in AI, says tech investor Jack Selby

A stark warning has emerged from tech investor Jack Selby regarding the potential impact of Middle Eastern sovereign wealth funds on the burgeoning artificial intelligence sector. Selby, managing director at Peter Thiel's family office, Thiel Capital, cautioned that a pullback from these funds could siphon off hundreds of billions of dollars, jeopardizing essential data center projects and AI investments. According to Selby, Middle Eastern investors—including sovereign wealth funds and governmental bodies—represent about 25% of global AI investment commitments over the next five years. He expressed concern that prolonged conflicts, particularly in Iran, might lead countries like the United Arab Emirates and Saudi Arabia to redirect their financial resources towards domestic reconstruction rather than AI initiatives. "The ramifications could be severe for both public and private tech companies, as well as data centers that rely heavily on this funding," he noted in an interview with CNBC. Selby emphasized that the markets may not fully recognize the critical role the Middle East plays in capital expenditure related to AI. He warned that if these investors begin to withdraw from key projects, the repercussions could be far more significant than currently anticipated. His observations coincide with recent reports indicating that major tech firms, such as Oracle, Nvidia, and Cisco, have established a presence in the UAE to support AI infrastructure development, with Microsoft planning a $15 billion investment in the region by 2029. The stakes are high, with Selby estimating that half of the AI funding in the Middle East is allocated to local data centers, while the other half supports global projects. He pointed out that some regional funds have already begun canceling contracts due to the ongoing conflicts. "The big question is whether they will also pull the plug on data centers," Selby remarked. In addition to geopolitical tensions, Selby highlighted the broader risks of over-investment and speculation in the AI sector, drawing parallels to the dot-com bubble. He warned that the AI boom is consuming unprecedented amounts of capital, with leading hyperscalers expected to invest over $700 billion this year. "The potential for wealth destruction in this space could far exceed the losses seen during the dot-com era," he stated, predicting that the fallout could reach into the tens or even hundreds of billions of dollars. Selby also shared insights on his investment strategy, which focuses on finding value outside the traditional tech hubs of California, New York, and Massachusetts. He believes that opportunities in other states offer more attractive prospects due to lower competition and costs. Furthermore, he cautioned family offices against making direct investments without proper expertise, noting that many are driven by social pressures rather than sound investment strategies. "Investors need to be cautious; the allure of the next big thing can often cloud judgment," he concluded.