How Much Sovereign AI?

Countries + compute = colossal costs

Aug 12, 2024

Everybody wants to be part of the generative AI race, until they realise the cost. Even G7 nations are going to struggle to keep up as the United States powers ahead.

Putting the mega capex spend (at least $200 billion by 2025) of some of the largest American companies, including Meta, Amazon, Tesla and Google, aside, countries will also have to compete with the US’ public sector.

The Federal Government has reportedly spent just $8.4 billion on the technology over the past four years. That is going to change in a dramatic fashion.

A bipartisan group of Senators, led by Majority Leader Chuck Schumer, has called for the government to fork out 0.1% of the US’ GDP on the technology per year, amounting to $32 billion.

The proposal is part of a wider plan for the US government to embrace AI innovation. The scary thing is that the report deliberately doesn’t even touch upon AI military spending, which, presumably, is going to amount to tens of billions of dollars per year on its own.

With super AI chips (H100s) going for $40,000 per unit and NVIDIA now telling shareholders that the Sovereign AI market will hit “single digit” billions this year, other nations (apart from China) will increasingly have to make hard strategic decisions around AI infrastructure.

Some countries, including the UK, Japan, Singapore, India, Israel and the UAE, are already building supercomputers. But these machines could become outdated quickly.

The US already dominates the list of the Top500 most powerful supercomputers in the world. To continue to catch-up, governments will have to spend more on GPU compute.

But the 0.1% of GDP threshold could be too expensive for many nations, especially in Europe, where there are continent-wide pressures to increase defence spending.

The risk is that the US and China de-couple from the rest of the world and every other nation will eventually become AI customers rather than innovators.

At best, as Ireland has achieved in the past and the UK is looking to emulate now, these countries can work with the private sector to build new data centres on their land.

The host country, which will have to deal with energy and water demands of these GPU farms, could subsequently ask for a share in the compute.

But if such a second-rate future sounded too unsavoury and the issue became a national security one, we may see an explosion of spending in the Sovereign AI sector.

Saudi Arabia certainly sees an opportunity. In March it was reported that the Middle Eastern nation plans to team with Andreessen Horowitz and spend $40 billion on AI investments.

As The New York Times noted:

“The planned tech fund would make Saudi Arabia the world’s largest investor in artificial intelligence. It would also showcase the oil-rich nation’s global business ambitions as well as its efforts to diversify its economy and establish itself as a more influential player in geopolitics.”

So how much Sovereign AI should we have? It all depends on how much cash you’ve got.

🤔 Other things in tech and media I’ve found interesting

Stick or twist at WBD. In a dramatic move, CNN parent Warner Bros. Discovery wrote down its traditional TV assets to the tune of $9 billion on 7 August. The company also announced that its revenues had dropped 5% in Q2 to $9.7 billion, while its free cash flow fell 43% to $976 million over the three months to the end of June.

All three of the business’ segments (Network, Direct-to-Consumer and Studio) posted total revenue losses. Subscribers noticeably dropped to 52m for the company's streaming brands, including HBO, Max and Discovery+. CEO David Zaslav described this division as a "top priority" for WBD.

The business did pay down some debt, but this financial metric remains considerable at $41bn. It means the company remains X4 leveraged. WBD's shares dropped in reaction to the earnings release. The NASDAQ-listed business is now trading around $6.7 per share, giving the company a market cap of $16.4 billion.

Zaslav doesn’t want to sell CNN. So what’s the turnaround plan? Wall Street is waiting.

Oliver Darcy quits. Almost two years to the day since his former colleague Brian Stelter was booted from CNN, Oliver Darcy has quit the outlet to launch his own newsletter, Status, which will focus on the media and the “ever evolving information space”.

Too much tech. Howard Schultz is not a fan of Starbuck’s app. In a wide-ranging interview with Acquired, the former chairman and CEO of the coffee giant warned that the technology had created crowding at some Starbuck stores and undermined the experience-driven mission of the company. “Coffee is personal,” he stressed.

It’s a rare admission from a global business leader that you can have too much tech. Shultz’s warning certainly comes at a prescient time. There is much talk of the ‘efficiency savings’ generative AI can help foster. But, ultimately, will it turn some service-driven jobs and even industries into commodities.

News Corp FY results. The company’s ‘news media’ segment saw its revenues fall by 4% to $2.1 billion in the full year to June 30, while total sales increased 2% to $10 billion and net income increased 89% to $354 million.

Notably, The Wall Street Journal’s total subscriptions increased to 4.2 million, while sign-ups to The Times and Sunday Times edged closer to 600,000. But both The Sun and The New York Post saw their audiences shrink (112 million for the former, 145 million for the latter). But the big news was the potential disposal of the business’ Australian TV arm, Foxtel Group.

CEO Robert Thomson said:

“We are confident in the Company’s long-term prospects and are continuing to review our portfolio with a focus on maximising returns for shareholders. That review has coincided recently with third-party interest in a potential transaction involving the Foxtel Group, which has been positively transformed in recent years. We are evaluating options for the business with our advisors in light of that external interest.”

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Tech, Power & Media

How Much Sovereign AI?

Countries + compute = colossal costs