It has been two days since the announcement that Nvidia is investing $20 billion to acquire leading talent from Groq, which the chip startup described as a “non-exclusive licensing agreement.” Nvidia, recognized as the world’s most valuable company, has not released any press statements or regulatory filings. A spokesperson has indicated that the company is merely affirming the information contained in Groq’s 90-word blog post, which was published following the conclusion of the holiday-shortened trading session on Wednesday. “They’re so big now that they can do a $20 billion deal on Christmas Eve with no press release and nobody bats an eye,” stated Stacy Rasgon. Although neither company has officially confirmed the price, report says that Groq’s lead investor, Alex Davis, disclosed on Wednesday that Nvidia has reached an agreement to acquire assets from Groq, a designer of high-performance artificial intelligence accelerator chips, for $20 billion in cash. Davis’ firm, Disruptive, has allocated over half a billion dollars to Groq and spearheaded the startup’s most recent financing round in September, achieving a valuation of $6.9 billion.

Groq founder and CEO Jonathan Ross, along with Sunny Madra, the company’s president, and other senior leaders, “will join Nvidia to help advance and scale the licensed technology,” the startup stated in the post, noting that it will continue as a “independent company,” led by finance chief Simon Edwards. In terms of acquisitions, Groq would represent Nvidia’s most significant move in its 32-year history. The most significant acquisition prior to this occurred in 2019, when Nvidia acquired Israeli chip designer Mellanox for nearly $7 billion. Nvidia is adopting a strategy similar to that of other tech giants in recent years, investing billions to recruit leading AI talent and secure essential technology via licensing agreements. It is a strategy that has been utilized by Meta, Google, Microsoft, and Amazon. Nvidia previously employed a similar strategy, investing over $900 million in September to recruit Enfabrica CEO Rochan Sankar along with other personnel from the AI hardware startup, and to secure licensing for the company’s technology, as reported. By steering clear of conventional acquisitions, tech firms have managed to evade certain degrees of antitrust examination and swiftly finalize agreements to acquire the talent they desire most.

“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,” Rasgon noted. The firm advises acquiring Nvidia shares, setting a price target of $275 for the stock. On Friday, Nvidia’s shares experienced an increase of approximately 1%, reaching a price of $190.53. The stock has experienced a 42% increase this year and has risen thirteenfold since the conclusion of 2022, coinciding with the surge of generative AI after the introduction of OpenAI’s ChatGPT. Nvidia has been utilizing its growing cash reserves to allocate capital throughout the AI ecosystem, including recent investments in OpenAI and Intel. As of the end of October, Nvidia reported $60.6 billion in cash and short-term investments, a significant increase from $13.3 billion at the beginning of 2023. Groq was established in 2016 by a team of former engineers, including Ross, who played a pivotal role in the development of Google’s tensor processing units, or TPUs, which are the search giant’s custom chips utilized by various companies as an alternative to Nvidia’s graphics processing units, or GPUs.

Groq specializes in the inference segment of the market, which pertains to utilizing AI for decision-making based on newly acquired information, while Nvidia holds a commanding position in the training segment of the market, focusing on instructing AI models to recognize patterns within extensive datasets. In a report released on Friday, analysts at Cantor indicated that Nvidia is “playing both offense and defense” by acquiring Groq’s assets, thereby preventing them from potentially being acquired by a competitor. “We believe this acquisition further strengthens Nvidia’s complete system stack and solidifies its leadership position in the AI market (and only expands its competitive advantage),” stated the analysts. BofA Securities analysts have upheld their buy recommendation and $275 target in light of the recent announcement, describing the deal as “surprising, expensive but strategic,” and noting that Nvidia recognizes that while GPUs dominate AI training, the rapid shift toward inference could necessitate more specialized chips. Analysts added that key questions remain around ownership of Groq’s intellectual property, licensing to competitors, and whether Groq’s cloud business could undercut Nvidia’s offerings. Nvidia has remained silent on those specifics, with the first opportunity for clarification expected on Jan. 5, when CEO Jensen Huang is scheduled to speak at CES in Las Vegas.