Oakland, California (Reuters)-Silicon Valley venture capitalists who have long focused on software and Internet companies have once again injected capital into the semiconductor industry, thanks to the promise of a new generation of artificial intelligence chips, which may challenge existing companies such as Intel and Nvidia Corp.
The new wave of semiconductor innovation cannot solve the shortage of chips based on old technologies that are currently plagued by the automotive industry and other industries. The shortage stems from a combination of factors, as automakers closed factories during the COVID-19 pandemic last year to compete with the huge consumer electronics industry for chip supply.
The enthusiasm of chip startups is mainly due to the demand for dedicated processors by companies using AI software, which can effectively run machine learning algorithms that require large amounts of data, which is the core of the booming artificial intelligence business.
Upstart chip makers including SambaNova Systems, Groq, and Cerebras Systems have stated that they produce better AI performance than Nvidia processors, and the latter’s multi-purpose graphics chipset (originally produced for video games) now dominates AI Dominance of the market.
“How can a car be good at driving pleasure, good at taking children and football to football practice and transporting goods, bricks and garbage? The answer is impossible.
Cerebras’ innovative technology is a very large chip, 56 times the size of a postage stamp, and encapsulates 2.6 trillion transistors.
Gartner analyst Alan Priestley pointed out that there are currently more than 50 companies specializing in the development of chips for AI applications, and said there may be more. He predicts that by 2025, the value of this market will exceed 70 billion U.S. dollars, up from 23 billion U.S. dollars in 2020.
Graphs related to Gartner AI semiconductor revenue forecasts:
According to data from the data company PitchBook, the venture capital investment of US chip start-ups reached 1.8 billion U.S. dollars last year, the highest level in at least two decades. 1.4 billion US dollars have been invested this year.
A chart about US venture capital investment in semiconductor companies:
In April alone, SambaNova said it had raised $676 million for its reconfigurable AI chip. Groq has an ultra-powerful single-core design that is fast and easy to program, and announced that it has raised $300 million. The CEOs of the two companies told Reuters that due to strong investor interest, the funding round exceeded the plan.
The opportunity now piques the interest of software-centric venture capital firms such as Battery Ventures, Bessemer Venture Partners, and Foundation Capital. PitchBook analyst Brendan Burke said they are one of the most active semiconductor investors in the past two years.
Dharmesh Thakker, a general partner of Battery Ventures, said that a few years ago he noticed that his AI software company was cooperating with Nvidia, and he began to consider chip investments.
“We said,’Hey, there may be a chance to build another Nvidia in the entire space surrounding AI.'”
Bessemer Venture Partners and Foundation Capital did not respond to requests for comment.
Ian Buck, general manager of NVIDIA accelerated computing, said he is confident that the company will maintain a leading position in AI chip games. Nvidia GPUs have been developing in the past seven years to meet the needs of AI software, some of which are dedicated to processing AI.
Peter Barrett, general partner of Playground Global, an early investor, said that the new materials and technologies used to build chips are driving innovation in areas other than AI. He cited chips used in quantum computers, a new technology that uses subatomic particles to store and process information.
As the US government finalizes a new subsidy program to support the domestic chip industry, all these activities are coming. Andy Rappaport, Groq’s new board member, has been investing in chips for decades. He believes that the geopolitical turmoil and competition between China and the United States may even prompt venture capital firms not only to invest in chip design. Companies, and even invest in manufacturing. He said: “If the federal government wants to take on my return and take my risk, then you may see a possible situation, that is, a new manufacturing player may appear.”
In turn, this may trigger more bets on chip design companies. Hany Nada, a venture capitalist at ACME Capital, said: “If I know that manufacturing is no longer a problem, then it will make it easier for me to invest in IC companies.” He refers to integrated circuit or chip suppliers.
The irony is that through AI chips, AI algorithms can more easily improve chip manufacturing, reduce costs, and open manufacturing to start-ups again. Matthew Putman, who founded Nanotronics in 2011, said that he did exactly that and got Peter Early investment in the Thiel Founders Fund.
By 2019, Nanotronics has raised approximately US$90 million. Putnam no longer worries about where the money will come from.
He said: “In 2013 or 2014, I walked in. If you don’t have an app or any enterprise SaaS software, you won’t even miss the receptionist.” He added that even after the Founders Fund was established, the investment was made. “This has changed a lot.”
Reporting by Jane Lanhee Lee in Oakland, California; Editing by Jonathan Weber and Matthew Lewis