In a move highlighting the escalating tech rivalry between the U.S. and China, Microsoft has announced a $1.5 billion investment in G42, an Abu Dhabi-based AI company. This strategic investment grants Microsoft’s vice chair and president, Brad Smith, a seat on G42’s board of directors.

The investment comes at a time when U.S. politicians have expressed concerns over G42’s connections with China. In January, a bipartisan House Select Committee on the Chinese Communist Party sent a letter that suggested placing G42 on the Entity List, which would restrict the company from accessing sensitive U.S. technologies, similar to Huawei’s situation since 2019.

The United Arab Emirates finds itself balancing relations between the U.S. and China. While traditionally aligned with the U.S., recent years have seen the UAE strengthening ties with China, raising concerns in Washington. The UAE’s president attended Russia’s economic forum last year, and the country has increased military cooperation with China.

Chinese investors are also turning to the UAE for business opportunities, given increasing tensions with the U.S. Last year, the Abu Dhabi-backed fund invested $738.5 million in Chinese premium EV maker Nio.

G42’s ties with Chinese companies have raised eyebrows in the U.S., particularly its relationships with Huawei, Beijing Genomics Institute (BGI), and Tencent. The company’s CEO, Peng Xiao, previously worked at DarkMatter, a firm known for developing surveillance tools.

Microsoft’s investment signifies its support for G42, aiming to enhance AI development while possibly reducing G42’s Chinese ties. If finalized, Microsoft will become G42’s official cloud partner, migrating the Emirati company’s data platform to Microsoft Azure. This move aligns with G42’s strategy to minimize its Chinese portfolio, including distancing from TikTok parent ByteDance.

In return, Microsoft gains significant market access in the UAE, deploying its AI and Azure technologies across various sectors, including finance, healthcare, energy, government, and education. Additionally, the partnership plans to launch a $1 billion fund to boost AI skills in the UAE and the wider region.

The deal underscores the increasing difficulty for tech companies to remain neutral amid U.S.-China tensions. Even the UAE, aiming for neutrality, finds itself compelled to pick a side in the ongoing tech rivalry.