Saudi Arabia and UAE race to buy computer chips

This is an audio transcript of the FT News Briefing podcast episode: ‘Saudi Arabia and UAE race to buy computer chips’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, August 18th, and this is your FT News Briefing.

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US mortgages have become even more expensive, and earnings reports from US retailers are sending mixed messages. Plus, Saudi Arabia and the United Arab Emirates are buying powerful microchips to develop artificial intelligence. I’m Sonja Hutson, in for Marc Filippino. And here’s the news you need to start your day.

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US mortgage rates are now at a 21-year high. The average 30-year fixed rate mortgage hit 7.09 per cent yesterday. It’s being driven up by the Federal Reserve’s aggressive interest rate rises. Plus, the yield on 10-year treasuries continued to rise yesterday. It’s now at its highest level in 16 years.

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A bunch of big US retailers reported earnings this week. Walmart said yesterday it beat forecasts and raised its profit guidance for the second time this year. Target did not have such a great quarter. It lowered its earnings outlook. Here to talk about the mixed signals is the FT’s Steff Chávez. Hi, Steff.

Steff Chávez
Hi, Sonja. How are you?

Sonja Hutson
I’m doing well, thanks. So these are super different outlooks from Target and Walmart. What’s going on?

Steff Chávez
So I think that the differences in their earnings can come down to some just differences between the companies themselves. So Target, for example, had a unique issue in that it received a lot of backlash from customers for its Pride merchandise. Customers harassed employees about the Pride merchandise. So much so that Target had to take some of that merchandise off the shelves and that bit into their sales. And then you can think also about how they have different product mixes, if you will. So Walmart focuses much more on food than Target does. And Target focuses much more on discretionary items than Walmart does. So if you are a consumer on a budget, you’re going to be spending on food and less on discretionary items, right? You’re going to buy things you need. You might be more likely to go shop at Walmart versus Target.

Sonja Hutson
So, Steff, what can we glean from these earnings reports about consumer spending habits in the US right now?

Steff Chávez
Both companies have made it clear that people are still spending. And I think the Walmart CEO put it pretty well yesterday morning. You know, he said there’s a strong job market. Wages are good. But at the same time, there are high borrowing costs right now because of high interest rates, which could even go higher. And those pent-up savings from the pandemic have started to dwindle. Even though they are spending, they’re being more careful about their spending choices. Home Depot, for example, said that people are buying fewer big ticket appliances. Retail data kind of show the same thing, that there was a dip in spending on furniture and cars as well.

Sonja Hutson
Is this kind of consumer behaviour going to continue?

Steff Chávez
I mean, the biggest signal, I think, is that both Target and Walmart said that consumers are very aware of the fact that they’ll have to start repaying their student loans this fall. So the Supreme Court threw out Joe Biden’s student debt relief payment plan. And people who have student loans have been able to go without paying their monthly payments for the whole of the pandemic. So those are about to resume and those payments can be very, very big and really put a dent on people’s discretionary budgets and even their essential budgets. You know, I think overall, we’re kind of — on all economic terms — we’re kind of waiting for the other shoe to drop, right? We’re keep expecting the job market to decline. We keep expecting wages to decline, but that hasn’t quite happened yet. And I think that the student debt repayment thing is very much a shoe that’s about to drop.

Sonja Hutson
That’s the FT’s Steff Chávez. Thanks, Steff.

Steff Chávez
Thank you, Sonja.

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Sonja Hutson
Saudi Arabia and the United Arab Emirates want to be leaders in artificial intelligence. So they’re buying thousands of high-performance computer chips. Madhumita Murgia is the FT’s artificial intelligence editor, and she joins me now to discuss. Hey, Madhu.

Madhumita Murgia
Hi, there.

Sonja Hutson
So it seems like these two countries now have the chips that they need to make a lot of progress with AI. You’ve reported that’s kind of step one. But step two is making sure they have the right personnel in place, right?

Madhumita Murgia
Yeah. So that’s the hard part, because in particular, we’re talking about generative AI, the kind of software that creates things like words, images, you know, video, music, code. And there aren’t that many people in the world who know how to build large language models, which is the kind of technology that powers ChatGPT. And most of them are in the US, on the west coast, some in the UK. China also has been racing to catch up. So this is basically a scarce resource. It’s not enough just to attract them with money because they’re getting that through investment in the US as well. So I think that will be the big challenge.

Sonja Hutson
And what are they doing to attract this really rare talent into their countries?

Madhumita Murgia
So the UAE partnered with a French start-up, essentially brought over a bunch of really smart AI researchers. And these researchers help to build something that is seen widely as one of the most advanced models out there. And in Saudi Arabia, what we reported was that one of the universities, which is the King Abdullah University of Science and Technology, they were buying chips. And the labs there were mostly staffed by Chinese researchers. So I think that, you know, having to be creative, if they can’t get to the sort of US and UK talent that’s currently building these models at companies in the west.

Sonja Hutson
So I do want to point out that neither of these countries are democracies. They also have pretty poor human rights records. Given that, are there concerns about potential misuse of this technology?

Madhumita Murgia
I think it’s fair to say that there are concerns, particularly, you know, the question of ethics and guardrails with AI models is one that’s being widely discussed by governments. So there are a lot of kind of inherent ethical concerns paired with the fact that these are autocracies that have cracked down on human rights defenders and journalists in the past.

Sonja Hutson
Has Nvidia, the company that sold them these chips, have they said anything about the potential for misuse?

Madhumita Murgia
No, they haven’t. We spoke to the CEO of Nvidia earlier this year and, you know, they have this really hot commodity that everybody’s fighting over at the moment in the tech world. And he said to us, their CEO Jensen Huang, they’re not going to discriminate between sort of large companies versus start-ups, and they are selling it to whoever wants to build AI stuff with it. And I guess that’s what they’re doing with the UAE and Saudi Arabia as well. They have announced previously partnerships with the two countries in terms of building local supercomputing infrastructure with them. So they have publicly said that they’re collaborating.

Sonja Hutson
Madhumita Murgia is the FT’s artificial intelligence editor. Thanks, Madhu.

Madhumita Murgia
Thank you.

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Sonja Hutson
Before we go, Barbie is a global phenomenon.

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Sonja Hutson
Even in places where it’s not supposed to be screened, like in Russia.

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Russians have still been joining in on the hype by watching low-quality bootleg versions in theatres.

Courtney Weaver
It’s almost like the forbidden fruit, which obviously makes the demand even higher.

Sonja Hutson
That’s the FT’s Courtney Weaver. She says western film companies pulled out of Russia after it launched its full-scale invasion of Ukraine last year.

Courtney Weaver
Really what this is, is just kind of pirated copies that were found on the internet. So someone in a movie theatre in Latin America films Barbie from the movie theatre hall, puts it on the internet and someone in Russia downloads the movie and gets actors to redubbed the movie. Really low quality. You know, you can kind of imagine their excitement. They’re finally getting to see Barbie in Russia, and then you see this low-quality version you’re seeing. It’s not that great. But I guess for some people that’s a fair enough trade-off.

Sonja Hutson
Courtney Weaver is the FT’s special correspondent for eastern Europe.

Oh, and one more thing. Our FT Weekend festival is back on Saturday, September 2nd in London. Speakers include Jesse Armstrong, Rachel Reeves and many others. As a briefing listener, you can claim a special discount. We’ve got that promo code in our show notes.

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You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Marc Filippino, Fiona Symon and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Josh Gabert-Doyon, Monique Mulima, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.

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