Nvidia’s exclusive dominance in the AI chip market has seriously affected the financing of competitors. This quarter, the number of financing deals won by U.S. chip startups fell by 80% year-on-year. Currently, Nvidia dominates the global artificial intelligence chip market. The stronger its dominance, the more difficult it becomes for its competitors. For investors, investing in such a startup is extremely risky and therefore they are reluctant to invest large sums of money to support it.
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For chip startups, upgrading a chip from an initial design to a working prototype can cost more than $500 million. As a result, investor disincentives have threatened the prospects of these startups.
Greg Reicow, a partner at venture capital firm Eclipse Ventures, said: “Nvidia’s continued dominance has proven to us how difficult it is to break into this market. This As a result, investors have significantly reduced their investment in these companies, at least for the most part.”
PitchBook data shows that as of the end of August, U.S. chip startups had raised only $881.4 million. This compares to $1.79 billion raised in the first three quarters of 2022. As of the end of August, the number of transactions dropped from 23 to 4.
Nvidia declined to comment.
According to reports, the artificial intelligence chip startup Mythic ran out of cash late last year and was almost forced to cease operations. In March this year, the company barely received an investment of US$13 million and temporarily tided over the difficulties. Mythic CEO Dave Rick said that Nvidia indirectly caused the financing difficulties of the entire artificial intelligence chip market, because investors want "big investment, big returns."
Rick also said that difficult economic conditions have also exacerbated the downturn in the semiconductor industry. Chip startup Rivos has also had trouble raising money recently, two people familiar with the matter said.
In this context, investors also have stricter requirements for target chip startups. They require startups to have products that generate sales within months of launch or even generate revenue, people familiar with the matter said.
About two years ago, chip startups typically won $200 million or $300 million in investment. Today, that number has dropped to about $100 million. At least two artificial intelligence chip startups said they have encountered investors trying to prevaricate investment under various names.
While AI chip startups have struggled in Nvidia’s shadow, startups in AI software and related technologies have not suffered from the same problem. PitchBook data shows that as of August, these startups have raised about $24 billion this year.
Also, although Nvidia dominates the field of artificial intelligence computing, it is not unbreakable. This year, AMD plans to launch a chip to compete with Nvidia, and Intel has also acquired a competing product through mergers and acquisitions. Analysts say these chips have the potential to become a replacement for Nvidia chips.