War in the Middle East &… | Newcomer Newsletter Summary

1. Key Themes

AI capital expansion is running on borrowed confidence amid rising geopolitical and financial risk

Investors and founders have largely ignored macro risk so far, but the cracks are visible and widening.

"Startup investors typically tell founders to ignore macro issues over which they have no control, and current trends suggest that they're heeding that advice... Yet the threat of geopolitical shocks is growing by the day — and is destined to crimp the AI build-out in various ways."

The physical infrastructure risk is not theoretical — it's already happening.

"AWS's acknowledgement this week that some customer data had been lost permanently due to drone attacks on its facilities in Bahrain and the UAE at the outset of the war, and they remain mostly offline."

Middle Eastern capital is a load-bearing pillar of the global AI trade — and it's more exposed than people assume

Estimates suggest a shockingly high concentration of AI funding traces back to Gulf money.

"Jack Selby, the head of Peter Thiel's family office, warned in the spring about the tech's over-reliance on Middle Eastern money, which he said accounted for 25% of all the capital being invested in AI globally."

Yet the response has been uneven — some funds are pulling back while others double down using oil price offsets rather than volume growth.

"Thus far, the impact on liquidity of Middle Eastern sovereign wealth funds has been limited: only Qatar has pulled back, while the UAE and Saudi Arabia are charging ahead... That's possible partly because rising oil prices have partially offset declining volumes."

Rising interest rates are a second, compounding threat to the AI debt-financed buildout

Beyond geopolitics, the cost of capital itself is turning against hyperscaler expansion plans.

"Rising interest rates will raise the cost of the debt that's financing the data center build-out, as Martin Peers smartly points out in The Information. Apollo's chief economist is warning that hyperscaler debt is getting riskier, which will also make it more expensive."

Big Tech incumbents retain structural advantages even in fast-moving frontier categories like personal AI agents

Despite hype around nimble startups, Meta's distribution and infrastructure let it catch up almost instantly.

"It is obviously far too early to call any winners, but Meta's entry, and early success, shows the power that Big Tech incumbents still enjoy."

2. Contrarian Perspectives

The AI trade looks resilient, but that resilience may be an illusion built on unsustainable Gulf financing and cheap debt. The article implies markets are mispricing risk by continuing to push valuations to record highs even as the underlying support structure (oil revenue, cheap capital, geopolitical stability) deteriorates.

"Public and private market valuations remain near all-time highs... Capital famously hates uncertainty — and rarely has more uncertainty weighed on the global economy."

Backend/agentic simplicity (Instinct's model) may not beat a visible, transparent browser-based approach (Meta's Muse) despite Instinct's early hype and higher valuation ambitions. Speed and privacy from isolated compute are winning users over, challenging the assumption that "invisible magic" agents are the superior product design.

"Muse also works on 'isolated compute,' Rayapati said, making it faster and more reliable for privacy purposes, compared to Instinct which distributes compute across users."

3. Companies Identified

AWS (Amazon Web Services) — Cloud infrastructure giant. Mentioned as a real-world casualty of Middle East conflict, showing physical/data risk to AI infrastructure. "AWS's acknowledgement this week that some customer data had been lost permanently due to drone attacks on its facilities in Bahrain and the UAE."
Humain — Saudi Arabian national AI champion. Mentioned as a recipient of continued Saudi state investment despite budget cuts elsewhere. "It continues to pump money into national champion Humain while cutting back non-tech investments such as its futuristic NeoCity and the LIV golf tour."
MGX — UAE-based major VC/sovereign investor. Cited as an aggressive investor in top AI labs despite regional turmoil. "Major VC investors such as the UAE's MGX, which has a large position in Anthropic and is also in OpenAI and xAI, continue to play aggressively."
Instinct — AI personal assistant startup (Benchmark-backed). Case study on the emerging personal-agent category and competitive pressure from Meta. "Instinct reportedly seeks a $10 billion valuation... Instinct has the happy problem — but problem nevertheless — of slowing answers due to capacity constraints."
Meta (Muse) — Big Tech incumbent's new personal AI agent. Highlighted as rapidly closing the gap with startup Instinct, illustrating incumbent advantage. "Meta's Muse eats into Instinct's Early Lead... Muse feels faster and he is using it much more than Instinct."
Town — AI agent startup backed by Andreessen Horowitz and Forerunner Ventures. Mentioned as a third competitor in the personal-agent race. "Both companies also have to compete with Town, backed by Andreessen Horowitz and Forerunner Ventures."
Atomicwork — AI rival to ServiceNow. Mentioned via its CEO's firsthand comparison of Muse vs. Instinct. (See Vijay Rayapati quote below.)
Crusoe — Data center/compute infrastructure company. Noted for a massive funding round underscoring continued capital inflow into AI infrastructure. "Crusoe raises nearly $4 billion in a single round at a $30.9 billion post-money valuation."
Revolut — European fintech. Mentioned as a cybercrime victim, signaling rising security risk in fintech. "European fintech Revolut falls victim to cybercrime."
Bain Capital Ventures — VC firm. Noted for launching a large new fund amid the broader funding environment. "Bain Capital Ventures unveils a new $1.6 billion fund."
Menlo Ventures — VC firm producing consumer AI research. Source of data on consumer AI monetization and chatbot preferences. "A new report from Menlo Ventures details how consumers are using AI tools to make money, but finds that they're sticking with incumbent chatbots for now."

4. People Identified

Jack Selby — Head of Peter Thiel's family office. Cited for warning about Silicon Valley's dependence on Middle Eastern capital. "Jack Selby... warned in the spring about the tech's over-reliance on Middle Eastern money, which he said accounted for 25% of all the capital being invested in AI globally."
Martin Peers — Journalist at The Information. Cited for analysis connecting rising interest rates to AI data center financing risk. "Rising interest rates will raise the cost of the debt that's financing the data center build-out, as Martin Peers smartly points out in The Information."
Vijay Rayapati — CEO of Atomicwork. Cited as a firsthand user comparing Meta's Muse favorably to Instinct. "Muse feels faster and he is using it much more than Instinct... Muse also works on 'isolated compute'... making it faster and more reliable for privacy purposes."
Noah Shinn — 23-year-old CEO of Instinct. Highlighted for his rapid product iteration and public visibility despite competitive threats. "Instinct's 23-year-old CEO Noah Shinn, who seems to communicate with the world mainly via X, is rolling out new features at breakneck speed, though he doesn't acknowledge the competition."
Renée Jones — Former SEC official. Featured for views on crypto regulation and Silicon Valley fraud risk (podcast guest). "Former SEC Official Renée Jones on FTX, Crypto & Silicon Valley's Fraud Problem."

5. Operating Insights

Product speed and reliability can beat first-mover hype. Instinct had the early buzz, but capacity constraints created real user friction that a fast-following incumbent (Meta) is exploiting — a reminder that scaling infrastructure matters as much as concept novelty: "Instinct has the happy problem — but problem nevertheless — of slowing answers due to capacity constraints, as we've experienced along with many others. Meta is aiming to capitalize."
Architecture choices (visible vs. invisible UX, centralized vs. isolated compute) are becoming real competitive differentiators in agentic AI, not just implementation details: "The browser is visible on your screen, while Instinct runs everything on its backend, with only a chat box visible to you."
Founders and investors should stress-test dependency on concentrated capital sources (e.g., Gulf sovereign wealth) given the estimate that a quarter of global AI capital may originate from a geopolitically volatile region.

6. Overlooked Insights

Data center hardening against military attack is becoming a real cost line item, not just a hypothetical — a subtle but significant shift in AI infrastructure economics: "when the discussion turns to hardening data centers with armaments to ward off attack, it's clear that they'll be getting more expensive at a minimum."
Nearly half of frequent AI users are already monetizing AI usage, suggesting consumer AI has moved past novelty into an income-generating utility faster than commonly assumed, yet users remain loyal to incumbent chatbots rather than switching to newer tools: "48% of those who consider themselves AI users have earned money from the technology... finds that they're sticking with incumbent chatbots for now."