Middle East Conflict and Rising Interest Rates Threaten AI Build-out

The ongoing conflict in the Middle East and falling oil exports are threatening the capital flows that are propping up the AI build-out. Despite this, the impact on the industry has been limited so far.

Meta's personal AI assistant Muse is giving Instinct a run for its money. Instinct is a startup that works as a chat box on WhatsApp or iMessage and can book tickets, find apartments, send emails, and cancel subscriptions for free. Meta's Muse connects to each app on your phone and can run the mundane parts of life with its own browser.

The war in the Middle East has caused some customer data loss for AWS due to drone attacks on its facilities in Bahrain and the UAE. This is a harsh reminder of the risks from geopolitical shocks, which are destined to crimp the AI build-out in various ways.

Saudi Arabia has pledged $15 billion in domestic AI investment this month, but it's far from clear that they can continue to fund the AI buildout at the current pace with their oil exports down by half or more. Rising interest rates will also raise the cost of debt financing the data center build-out.

The personal AI agent war is upon us, and Instinct is facing competition from Meta's Muse and Town, backed by Andreessen Horowitz and Forerunner Ventures.