Nvidia buying AI chip startup Groq for about $20 billion, biggest deal

Nvidia has agreed to buy Groq, a designer of high-performance artificial intelligence accelerator chips, for $20 billion in cash, according to Alex Davis, CEO of Disruptive, which led the startup’s latest financing round in September.

Davis, whose firm has invested more than half a billion dollars in Groq since the company was founded in 2016, said the deal came together quickly. Groq raised $750 million at a valuation of about $6.9 billion three months ago. Investors in the round included Blackrock and Neuberger Berman, as well as Samsung, Cisco, Altimeter and 1789 Capital, where Donald Trump Jr. is a partner.

Groq is expected to alert its investors about the deal later on Wednesday. While the acquisition includes all of Groq’s assets, its nascent Groq cloud business is not part of the transaction, said Davis.

It would mark by far Nvidia’s largest deal ever. The chipmaker’s biggest acquisition to date came in 2019 with the purchase of Israeli chip designer Mellanox for close to $7 billion. At the end of October, Nvidia had $60.6 billion in cash and short-term investments, up from $13.3 billion in early 2023.

Groq has been targeting revenue of $500 million this year amid booming demand for AI accelerator chips used in speeding up the process for large language models to complete inference-related tasks. The company was not pursuing a sale when it was approached by Nvidia.

Colette Kress, Nvidia’s CFO, declined comment on the transaction.

Groq was founded in 2016 by a group of former engineers, including Jonathan Ross, the company’s CEO. Ross was one of the creators of Google’s tensor processing unit, or TPU, the company’s custom chip that’s being used by some companies as an alternative to Nvidia’s graphics processing units. 

In its initial filing with the SEC, announcing a $10.3 million fundraising in late 2016, the company listed as principals Ross and Douglas Wightman, an entrepreneur and former engineer at the Google X “moonshot factory.”

Nvidia has ramped up its investments in chip startups and the broader ecosystem as its cash pile has mounted. The company has backed AI and energy infrastructure company Crusoe, AI model developer Cohere, and boosted its investment in CoreWeave as the AI-centric cloud provider was getting ready to go public this year.

In September, Nvidia said it intended to invest up to $100 billion in OpenAI, with the startup committed to deploying at least 10 gigawatts of Nvidia products. The companies have yet to announce a formal deal. That same month, Nvidia said it would invest $5 billion in Intel as part of a partnership.

Another chip startup that’s gained traction during the AI boom is Cerebras Systems. The company had planned to go public this year but withdrew its IPO filing in October after announcing that it raised over $1 billion in a fundraising round.

In a filing with the SEC, Cerebras said it does not intend to conduct a proposed offering “at this time,” but didn’t provide a reason. A spokesperson told CNBC at the time that the company still hopes to go public as soon as possible.

— CNBC’s Jordan Novet contributed to this report.

WATCH: How the massive power draw of generative AI is overtaxing our grid