Analyst: Nvidia-Groq Deal Fuels Fiction of Competition

Nvidia Secures Key AI Inference Talent and Technology in $20 Billion Licensing Deal with Groq

In a move that has sent ripples through the semiconductor industry, Nvidia, the dominant force in AI computing, has entered into a significant non-exclusive licensing agreement with AI chip startup Groq. While not a full acquisition, the deal is reportedly valued at a staggering $20 billion and signals a strategic pivot for Nvidia to bolster its capabilities in the crucial AI inference market.

The terms of the agreement, initially revealed through a brief blog post by Groq, confirm that Nvidia will license inference technology from the startup. Notably, Groq’s founder and CEO, Jonathan Ross, along with other senior leadership, will be joining Nvidia. This influx of talent is intended to accelerate the development and deployment of licensed technologies at a global scale. Groq itself will continue to operate as an independent entity, with its finance chief, Simon Edwards, taking the helm.

This $20 billion figure, while unconfirmed by Nvidia, was disclosed by Groq’s lead investor, Alex Davis of Disruptive. Davis’s firm had previously invested over half a billion dollars in Groq, leading its September financing round at a valuation of $6.9 billion. The magnitude of this deal dwarfs Nvidia’s previous acquisitions, the largest being the $7 billion purchase of Mellanox Technologies in 2019.

The strategic approach of leveraging licensing agreements and talent acquisition over outright acquisitions has become a familiar playbook for major tech companies navigating the rapidly evolving AI landscape. Companies like Meta, Google, Microsoft, and Amazon have all employed similar tactics to quickly integrate critical AI expertise and intellectual property, often circumventing the lengthy antitrust reviews associated with traditional mergers.

“Antitrust would seem to be the primary risk here, though structuring the deal as a non-exclusive license may keep the fiction of competition alive,” noted Stacy Rasgon, an analyst at Bernstein, in a recent interview. Rasgon’s firm maintains a “buy” rating on Nvidia stock with a price target of $275, underscoring the analyst community’s positive view of the company’s strategic maneuvers.

Nvidia’s stock saw a modest increase of approximately 2% on Friday, trading at $192.40. The company’s stock performance has been nothing short of extraordinary, up 43% year-to-date and a remarkable thirteenfold increase since the generative AI boom began in late 2022 with the launch of OpenAI’s ChatGPT. This financial strength has enabled Nvidia to deploy its substantial cash reserves, which stood at $60.6 billion in cash and short-term investments at the end of October, into strategic investments across the AI ecosystem.

The move is particularly significant given Groq’s origins. Founded in 2016 by former Google engineers, including Ross, who was instrumental in developing Google’s Tensor Processing Units (TPUs), Groq has specialized in the inference side of AI. This contrasts with Nvidia’s traditional dominance in the training phase, where AI models are developed and taught. By securing Groq’s inference technology and talent, Nvidia is effectively strengthening its end-to-end AI solutions and potentially preventing a key competitor from accessing these valuable assets.

Analysts at Cantor viewed the deal as a dual offensive and defensive strategy, stating that it “enhances Nvidia’s full system stack and overall leadership in the AI market (and only widens its competitive moat).” Similarly, BofA Securities analysts characterized the deal as “surprising, expensive but strategic,” highlighting Nvidia’s recognition of the growing importance of specialized chips for the rapidly expanding inference market.

Key questions remain regarding the ownership and potential licensing of Groq’s Language Processing Unit (LPU) intellectual property to Nvidia’s competitors, as well as the future competitive positioning of Groq’s remaining cloud business. Nvidia has yet to offer further details, with CEO Jensen Huang expected to address these and other strategic initiatives at CES in Las Vegas on January 5th.