Satya Nadella just tried to show everyone who's boss in AI, again

• Satya Nadella is hoping to prove he's the shrewdest dealmaker in AI.
• Microsoft just put $1.5 billion in UAE firm G42 while getting it to divest its China ties.
• G42 has been linked to a chip venture led by Microsoft's other main AI bet, OpenAI.

Satya Nadella has an AI war to win. His tactics to secure victory for Microsoft as its CEO look bolder by the day.

Microsoft's latest move to steamroll the competition in AI came this week after it emerged it was investing $1.5 billion in G42 — an Abu Dhabi-based AI development firm that has slowly built ties with OpenAI, the Redmond giant's main partner in the field.

Making it happen required some shrewd maneuvering on Microsoft's part, however.

G42 has been a concern for US lawmakers after it first partnered with OpenAI in October. The Emirati firm's CEO, Peng Xiao, once led a subsidiary of DarkMatter, a spyware company previously in the crosshairs of US law enforcement after three people linked to the firm admitted to unlawful hacking.

G42 also has ties to Huawei, a Chinese tech giant sanctioned by the US over fears its telecoms gear can offer surveillance backdoors to Beijing. Although G42 has denied "connections to the Chinese government," it hasn't stopped the White House from making noise about risks.

But with G42 reported to be in talks to finance a new chip venture being planned by OpenAI chief Sam Altman, Nadella seems to have not wanted to cut G42 out of the picture.

It's why ahead of the $1.5 billion investment, Microsoft was reported to have worked closely with the US government and G42 behind closed doors to offer guarantees that the Emirati firm would divest from China. Microsoft president Brad Smith, who's a key Nadella lieutenant, will also join its board.

Given China's huge market, it's hard to imagine that the decision came easy for G42, not least because the UAE has dedicated much time and effort forging business relations with China. But it seems Nadella was able to offer something even better.

This is just the latest instance of Nadella making clever power plays to secure Microsoft's position as the team to beat in AI.

Since the drama that unfolded at OpenAI in November with the firing and rehiring of Altman, the Microsoft CEO has diversified the number of higher-profile bets his company has in AI.

Last month, Nadella pulled off a big coup by hiring Mustafa Suleyman, a DeepMind cofounder and Inflection AI CEO, and several of his software engineers to head up a new AI division at Microsoft.

The move involved a $650 million payment to Inflection AI that would also allow Microsoft to license Inflection's AI models. The cash reportedly allowed Inflection to pay its investors.

Still, from Microsoft's point of view, it'll have been a small price to pay to secure talent and access to technology playing a similar game to OpenAI.

Microsoft made a similar bet on an OpenAI rival earlier this year after investing in Paris-based Mistral AI, in a deal that it described as a "multi-year partnership." Mistral has accrued a $2 billion valuation less than 12 months since its founding in April 2023.

These sprawling bets will now form a part of Nadella's bigger plan to take his rivals to task. Their ability to compete will increasingly depend on their response to his gambit.