Is Nvidia getting bigger and bigger, making it difficult for AI chip startups to raise funds?

Original source: Semiconductor Industry Perspective

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**The amount of financing for U.S. chip startups fell. **

Documents disclosed by the U.S. SEC show that Nvidia Chairman and CEO Huang Jensen recently reduced his stake in Nvidia, cashed in options on September 1, 5, and 6, 2023, and sold 29,688 Nvidia shares every day, totaling approximately 89,100 shares sold. share. If calculated based on the average price of US$480.37 per share over the three trading days, Huang Renxun cashed out approximately US$42.8 million (approximately 312 million yuan).

With the popularity of ChatGPT, NVIDIA's performance continues to grow rapidly.

The financial report shows that Nvidia’s revenue in the second quarter of 2023 was US$13.51 billion, an increase of 101% from US$6.7 billion in the same period last year, and an increase of 88% from US$7.192 billion in the previous quarter. NVIDIA has also become a popular player in the US stock market in 2023, with its market value quickly exceeding US$1 trillion. Despite two consecutive days of stock price declines, the market value is still as high as $1.14 trillion.

Rob Arnott, the legendary investor and chairman of the investment institution Research Affiliates, recently warned that Nvidia's stock has formed an asset bubble after its amazing rebound this year. If the bubble bursts, it may trigger a broader market collapse.

Although investors have some doubts about Nvidia, foreign media reported that Nvidia's dominance in artificial intelligence computer chip manufacturing has raised the threshold for potential competitors to obtain venture capital. The number of U.S. transactions this quarter fell by 80% from a year ago. Nvidia dominates the market for chips that process large amounts of language data.

As Nvidia becomes more powerful in this area, it becomes increasingly difficult for companies trying to make competing chips. The cost of advancing a chip design to a working prototype can exceed $500 million, so pullbacks quickly threaten the startup's prospects. "Nvidia's continued dominance speaks volumes about how difficult it is to break into this market," said Greg Reichow, partner at Eclipse Ventures. "This has led to less investment in these companies, or at least less investment in many of them. reduce."

As of the end of August, U.S. chip startups had raised $881.4 million, according to PitchBook data. This compares to $1.79 billion in transaction volume in the first three quarters of 2022. By the end of August, the number of transactions had dropped from 23 to 4.

Nvidia declined to comment.

According to the technology website The Register, AI chip startup Mythic raised a total of about US$160 million in funding. It ran out of cash last year and was almost forced to cease operations. But a few months later, in March, it managed to raise a relatively modest $13 million in investment.

Mythic CEO Dave Rick said Nvidia is "indirectly" exacerbating the overall AI chip financing woes as investors look to make "big, home-run investments with huge returns." Rick said difficult economic conditions have exacerbated the cyclical semiconductor industry downturn.

A mysterious startup called Rivos that designs data server chips has recently had trouble raising money, two sources familiar with the company said. A Rivos spokesman said Nvidia's market dominance has not hampered its fundraising efforts and that its hardware and software "continue to excite our investors." Rivos is embroiled in a lawsuit with Apple, which accuses Rivos of stealing intellectual property, exacerbating fundraising challenges.

Strict Investors

Chip startups looking to raise cash face tougher demands from investors. Sources said they require companies to have a product that can be launched within a few months or that is already generating sales.

About two years ago, new investment in chip startups was typically $200 million or $300 million. That number has dropped to about $100 million, said PitchBook analyst Brendan Burke.

At least two artificial intelligence chip startups have overcome investor reluctance by touting potential customers or their relationships with high-profile executives.

To raise $100 million in funding in August, Tenstorrent "marketed" CEO Jim Keller, a near-legendary chip architect who has designed for Apple, Advanced Micro Devices and Tesla over chip.

D-Matrix expects revenue this year to be less than $10 million, but it raised $110 million last week, backed by financial backing from Microsoft and the Windows maker's pledge to test D-Matrix's new AI chip when it launches next year. Dollar.

While these chipmakers in Nvidia's shadow are struggling, startups in artificial intelligence software and related technologies don't face the same constraints. They had raised about $24 billion this year through August, according to PitchBook data.

Although Nvidia dominates artificial intelligence computing, the company doesn't have a firm lock on the field. AMD plans to launch a chip this year to compete with Nvidia, while Intel has grown by leaps and bounds by acquiring rival products through acquisitions. Sources believe these products have long-term potential to become alternatives to Nvidia chips.

There are also adjacent applications that could provide opportunities for competitors. For example, chips that perform data-intensive calculations for predictive algorithms are an emerging niche market. Nvidia does not dominate this area and is ripe for investment.