AI chip start-ups: Nvidia is proving a difficult stone to dislodge

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Artificial intelligence is the philosopher’s stone, says Silicon Valley venture capital investor Marc Andreessen. Its problem-solving abilities are near limitless. Tech companies are competing to integrate generative AI tools. One of the barriers to widespread adoption is access to chips.

Nvidia’s specialised graphics processing units (GPUs) dominate the market. They have a long waiting list. This has made Jensen Huang, founder and chief executive, an early winner in the generative AI race.

Ravenous demand for AI services and the desire not to rely on one company spur its rivals. Alongside Intel and AMD, start-ups such as Silicon Valley’s Cerebras hope to challenge Nvidia’s market share. Cerebras says its “wafer-scale engines” can take the place of both GPUs and central processing units. Elsewhere in Silicon Valley, Groq has demonstrated that its chips could run Meta’s large language model LLaMA, which uses Nvidia chips.

The market for AI chips topped $5.5bn last year, according to PitchBook. However, the time and money required to develop semiconductors makes competition hard. In addition to spending hundreds of millions of dollars, companies risk having obsolete chips by the time they are made.

The UK’s Graphcore is developing what it calls intelligence processing units (IPUs), specifically for AI applications. Pre-tax losses last year rose by more than 10 per cent to almost $205mn, while revenue fell by nearly half to less than $3mn.

Non-chip AI start-ups are still popular with investors, but less so semiconductor start-ups. Excluding China, VC deals dropped 25 per cent last year, according to PitchBook data. Nvidia’s domination, estimated at 90 per cent of the market, appears to have dented confidence elsewhere.

The US government’s determination to tighten restrictions on AI chip exports lowered Nvidia’s share price by 3 per cent on Tuesday. But the strength of its home market position will keep the trillion-dollar stock’s valuation high.

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