Graphcore Ltd., the U.K.-based artificial intelligence chip developer that’s hoping to take on Nvidia Corp., has been acquired by the Japanee technology giant SoftBank Group Corp.

The deal, announced today, will help Softbank, founded by Masayoshi Son, accelerate its multibillion-dollar push into the AI industry, which has now become its main area of focus.

Founded in 2016, Graphcore is often said to be a rival to Nvidia, whose graphics processing units dominate the AI processing industry. The startup has created an alternative to those GPUs, known as “intelligence processing units,” which are customized for the specialized requirements of AI applications.

The company will sit alongside Arm Ltd., the British semiconductor design company that is widely recognized as the crown jewel in SoftBank’s portfolio of technology companies. Analysts believe that Son, one of the most enthusiastic investors in the tech industry, is making his “next big bet” on AI, which has become one of the hottest trends in tech.

Graphcore has attracted some significant investment in the past, raising almost $700 million over the years through a series of funding rounds. Back in 2020, it raised $222 million at a unicorn valuation of $2.77 billion from investors including the Ontario Teachers’ Pensions Plan Board, Fidelity International and the British asset manager Schroders. That came two years after it closed on a $200 million investment from backers including Microsoft Corp., Dell Technologies Inc. and Samsung Electronics Co. Ltd.

Graphcore’s products include the Bow IPU that debuted in March 2023. Designed in conjunction with Taiwan Semiconductor Manufacturing Co., Bow IPU is an advanced wafer-on-wafer chip that can manage up to 350 trillion processing operations per second.

The company sells the Bow IPU processors as part of a computing system dubbed the Bow-2000 IPU Machine. Each system includes four Bow IPU processors that provide 1.4 petaflops of processing capacity. One petaflop equals a quadrillion computing operations per second.

Despite the impressive specifications of its chip technology, Graphcore has struggled to make a profit, reaping just $2.7 million in sales and $205 million in pre-tax losses in fiscal 2022, the most recent year in which it has published its financial accounts. The company said in October 2023 that it would need to attract new investment capital “within months”, before reports first emerged in February that it was exploring a sale.

The companies didn’t confirm how much SoftBank is paying to acquire Graphcore, but Bloomberg quotes people familiar with the matter as saying the agreed price was around $600 million. If true, the acquisition is a tad anticlimactic for Graphcore’s investors.

Still, Graphcore co-founder Chief Executive Nigel Toon expressed optimism about the company’s fortunes going forward. He told the Financial Times that the money for the acquisition came from SoftBank itself, as opposed to its Vision Fund, a detail that reflects the strategic nature of SoftBank’s investment.

Toon, who will stay at the helm of Graphcore along with his co-founder and Chief Technology Officer Simon Knowles, said in the interview that the company’s biggest problem had been a lack of capital to scale its operations.

That should change with SoftBank, which has reportedly promised Toon he will be backed with a “huge amount of resources,” enabling it to finally rise to the challenge of taking on Nvidia and other chipmakers, such as Advanced Micro Devices Inc. and Intel Corp. The company plans to increase its U.K. headcount significantly, he said.

The acquisition will help SoftBank President and CEO Son to fulfill his ambitions of becoming a leader in the fast-growing AI industry. SoftBank maintains a 90% stake in the chip design firm Arm, which has seen its value triple since holding its initial public offering in September 2023, as investors see it becoming more relevant in AI. Softbank didn’t provide any details, but it’s likely that it sees significant potential for collaboration between Graphcore and Arm.

Toon said the acquisition closed after receiving regulatory approval from the relevant bodies in the U.K. and the U.S., as well as national security clearance from the U.K. government. The approval process was unusually fast, given that news of the acquisition talks only surfaced in February.

Constellation Research Inc. analyst Holger Mueller said Graphcore has been on the radar for several years already with multiple funding round stretching back to the middle of the last decade, but had failed to take the next step up.

“Now it’s getting a second chance to compete with Nvidia, fueled by funding from SoftBank,” the analyst said. “The potential synergies with Arm are promising, but first Graphcore has to demonstrate that its lack of traction in the chip market wasn’t due to any product deficiency but because of a lack of funding. The former will take time, but the latter should be easier with SoftBank as an investor.”

Prior to closing on the deal, Graphcore withdrew from its business operations in China, where it had been working with companies such as Baidu Inc. It said the introduction of strict U.S. export controls had made it increasingly difficult for the company to keep working there. A significant amount of Graphcore’s customers were thought to be Chinese firms, but the chipmaker will now focus on selling its AI chips to companies in the U.S. and Europe, Toon said.

At a shareholder meeting last month, Son told attendees that SoftBank had made some mistakes via its Vision Fund investments in previous years – such as the multimillion dollar bet on WeWork Inc. However, he said that he had learned from these errors, labeling them as a “warm up” for his ambitions to lead the AI industry.

In a statement, SoftBank’s Vikas Parekh, a managing partner in the company’s Vision Fund, said SoftBank was looking forward to collaborating with Graphcore on its vision of creating “artificial general intelligence”, which refers to the concept of AI-powered machines that can outperform humans in various tasks.

Photo: SoftBank