INTRODUCTION: DEFINING THE AI ECOSYSTEM
MENA, and particularly the GCC, stands at a pivotal moment in the global AI race. As detailed in our AI Agent report, the ecosystem can be viewed as a three-layer inverse pyramid: infrastructure at the base, models in the middle, and applications at the top. This structure not only reflects the technical progression from hardware to end-user value but also the concentration of players: very few at the infrastructure layer, more at the model layer, and the most at the application layer. As we have previously outlined, the greatest opportunity lies in the application layer, a view reinforced by recent global developments.
The infrastructure layer includes data centers and compute resources, which require significant capital and are dominated by global and regional giants. While it can offer attractive returns when demand is high, long-term returns are generally aligned with its lower risk profile, and opportunities for new entrants are limited.
The model layer has seen a surge of investment, with tech giants and startups pouring billions into developing ever-more powerful LLMs and AI engines. Yet the landscape is increasingly crowded and leadership can shift rapidly, as seen with DeepSeek’s disruption at a fraction of the cost. Globally, the race to build advanced general-purpose models is as much about national security and strategic autonomy as it is about technology. As such, as open-source alternatives proliferate and geopolitical tensions rise, the risk-reward profile for investing in general models is becoming less attractive.
ZOOMING IN ON THE APPLICATION OPPORTUNITY
In contrast, the application layer is becoming increasingly compelling. Falling API costs, improving model performance, and the ability to tailor AI solutions to local needs, languages, and regulations lower the barrier to building transformative applications. This enables both startups and established companies to rapidly prototype, scale, and refine AI-powered products for specific markets and use cases.
In the GCC, immediate equity value at the application layer is estimated at over $18 billion, with $23 billion in potential savings for companies, a figure expected to multiply as AI adoption accelerates and models improve. This is especially true in Saudi Arabia, where rapid digital transformation, ambitious national initiatives, and a young, tech-savvy population create fertile ground for AI-powered products and services.
Despite the impressive speed of AI adoption in the GCC, driven by government initiatives, cross-sector collaborations, and a robust startup pipeline, we are still in the early days. Most deployments are in chatbots, virtual assistants, and basic automation, while the full potential in sectors like healthcare, logistics, and energy is just beginning to be realized. Investments in Arabic NLP, cloud computing, and data infrastructure are laying the groundwork for more sophisticated, locally relevant applications.
The global AI landscape is evolving rapidly, and the dynamics of competition are far from settled. While market capitalization and adoption are growing at an unprecedented rate, R&D spend on AI remains in its early stages.
THE CASE FOR A GCC-GROWN GLOBAL AI GIANT
Some fear the GCC will be dominated by global AI giants, but local champions have emerged in SaaS and digital platforms by leveraging regulatory insight, deep local integration, and understanding of regional needs. The regulatory environment, data sovereignty requirements, and local integration create natural barriers to entry for international competitors. For instance, local fintechs like Tabby have outperformed global players by aligning with local regulations and consumer preferences, while platforms like Salla and Zid thrive by offering features tailored to the Saudi market.
Our thesis is clear: The GCC is uniquely positioned to create leading AI applications and specialized models, distinct from the general-purpose LLMs dominating headlines. Four enablers are critical: capital, talent, data, and governance. While capital and talent are being addressed, including through our AI fund, the true differentiators will be data and governance. For example, Saudi Arabia’s vast, often sovereign, data assets, held by family businesses and public institutions, provide a foundation for specialized, high-impact AI solutions. Much of this data cannot leave the country, making it a strategic asset for developing models tailored to local challenges. By incentivizing enterprises to “platformize” proprietary data and establishing robust governance, the GCC can catalyze the development of effective and compliant specialized models and applications.
The window of opportunity is wide open, but the pace of change is relentless. Those who act boldly at the application layer will define the future of AI in the GCC and beyond.