“Microsoft got strong encouragement from the US government to move forward in this process,” Smith said in an interview with G42 chief executive officer Peng Xiao. “That reflects a recognition by the US government of the importance of the relationship between the two countries and the importance of continuing to encourage responsible companies like G42 and Microsoft to really be at the forefront, not only of the technology itself, but of world-leading security and safety and responsible AI standards.”

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G42 held talks with the US Commerce Department’s Bureau of Industry and Security and came to an understanding last year, according to people familiar with the discussions. Under the arrangement, G42 agreed to pare back its presence in China or face potentially punitive measures from Washington, they said.

The firm had been criticised in Washington, with one key lawmaker calling for sanctions because of alleged links to Chinese businesses, including Huawei Technologies. The firm “categorically” denied that it had “connections to the Chinese government and their military industrial complex”.

G42 said it has “pursued a commercial strategy since 2022 to fully align with our US partners and not to engage with Chinese companies”.

The Abu Dhabi firm has businesses spanning everything from cloud computing to driverless cars. It is part of the US$1.5 trillion empire of UAE National Security Adviser Sheikh Tahnoon bin Zayed Al Nahyan.

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The Microsoft investment, an expansion of an existing partnership between the two companies, gives the US tech giant a minority stake in G42, according to Xiao, who declined to disclose financial terms or say how much G42 would spend on Microsoft’s cloud services. Redmond, Washington-based Microsoft and G42 will also set up a US$1 billion fund for developers.

In a later stage of the deal, Microsoft will host some of its own applications in G42’s data centres and use the relationship as a way to reach customers in Africa and Central Asia, Smith said.

“There are markets today where Microsoft and really no American technology company has a real data centre presence,” he said. “This is the kind of partnership that can really bring the cloud and AI to the global south probably a decade faster than would otherwise be the case.”

The investment agreement, which was signed when Smith visited Abu Dhabi earlier this month, is the product of a year’s worth of talks that included coordination with government officials in both countries. In February, G42’s Xiao said in an interview that the company would cut its presence in China, and pledged to invest in key Western markets.

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That pivot came against the backdrop of broader US pushback on entities perceived to have close ties with Beijing. Officials in President Joseph Biden’s cabinet were reviewing more than half a dozen acquisitions, people familiar with the matter said last year, including deals from Mubadala Investment, which owns a stake in G42.

G42’s partnerships include one with ChatGPT creator OpenAI, which is teaming up with the Gulf firm as part of an expansion within the UAE and the broader region. San Francisco-based OpenAI – whose biggest investor is Microsoft – has held discussions with G42 to raise funding for a new chip venture, Bloomberg reported last year, but the current status of those talks is unclear.

G42 is not looking for more investments, but it is seeking additional partnerships, Xiao said. “Through this anchor relationship with Microsoft, we will be able to work with a lot more global partners in the AI and cloud-computing domain.”