Saudi Arabia faces AI ambition and economic challenges as oil era wanes

At the recent Future Investment Initiative in Riyadh, often dubbed ‘Davos in the Desert’, Saudi Arabia’s traditional reliance on oil was overshadowed by a new ambition: to become a global leader in artificial intelligence. Crown Prince Mohammed bin Salman, presiding over the event, placed the state-backed AI firm Humain centre stage, announcing partnerships with industry giants such as Saudi Aramco and Blackstone, with deals valuing up to $3bn. The strategy seeks to leverage Saudi Arabia’s extensive land, abundant energy supplies, and sovereign wealth to fuel a dramatic expansion in data infrastructure, marking a clear effort to diversify away from an oil-dominated economy.

Despite these grand designs, Saudi Arabia’s track record with technology investments has been mixed. Over the past decade, Silicon Valley has welcomed billions from Riyadh, but many marquee investments have yet to deliver returns. The crown prince’s early courtship of Google’s Larry Page and Sergey Brin, alongside heavyweight venture capitalist Peter Thiel, heralded a new era of ambitious spending. The kingdom’s Public Investment Fund (PIF) put $45bn into SoftBank’s Vision Fund—still one of the world’s largest tech investment vehicles—while amassing holdings in household names such as Nintendo. However, numerous ventures have proven underwhelming. The PIF’s $1bn injection into Magic Leap and its majority stake in electric vehicle firm Lucid have yet to bear fruit, with profits remaining elusive and valuations dropping. The PIF’s early sale of Tesla stock, before the company’s meteoric rise, stands out as a particularly costly misstep.

Some positive outcomes have punctuated this uneven record. Investments in Uber and mobile gaming company Scopely have delivered much-needed wins. Domestically, Lucid has established manufacturing operations in Jeddah, and Magic Leap has recently formed a partnership with Google. Yet these successes have not been enough to offset high-profile disappointments—in health technology, for example, the collapse of Babylon after being valued at $4bn.

The Saudi drive into technology is joined by substantial ventures in sport and infrastructure, each carrying significant financial risk. Notable projects include the LIV Golf franchise, the Saudi Pro football league, and vast ‘gigaprojects’ such as Qiddiya, an entirely new city, and Neom, a futuristic metropolis whose projected costs have ballooned to an estimated $8.8tn. Such scales of ambition place increasing strain on public finances. Oil revenues in 2025 are down by a quarter compared to the previous year, and Saudi Arabia faces a projected budget deficit exceeding 5 per cent of GDP—double earlier forecasts. While oil output has ramped up, the non-oil economy remains sluggish amid high interest rates, soaring property prices, and low consumer confidence. Government capital expenditure has already declined by 40 per cent this year.

To counteract these pressures, Saudi authorities are encouraging foreign direct investment and greater private sector involvement. This shift is evident in recent moves to increase foreign ownership ceilings for equities and property. The country attracted nearly $32bn in foreign investment last year, mostly in non-oil sectors. The PIF, facing a halved net profit and downward revaluations of several infrastructure projects, is recalibrating its approach, with expectations that it will prioritise domestic over international spending in the coming period.

The execution risk remains significant. As the kingdom aspires to build a credible post-oil economic base through artificial intelligence and technology, the ability to deliver consistent returns will be crucial to the long-term viability of this national transformation. For now, the world is watching—and so are Saudi citizens—as the nation’s next chapter unfolds.