Nvidia's $20B Groq Consolidation Masterpiece

0:00Nvidia has just signed a$20 billion deal to license technology from Grok, a TPU company. There's a lot of things going on here. Basically, people are saying this is NVIDIA admitting that there's no way their GPUs could keep up with TPUs. There's a lot of incredible things going on with the deal. Some people saying this is 3x the valuation of the company that they're paying. The other thing is that NVIDIA has made it very clear they're not acquiring the company. There's a whole bunch of crazy drama behind the scenes in this absolutely colossal deal. We're going to break them all down on the podcast today.

0:33Of course, as always, Merry Christmas to everyone listening. Before we get into the podcast, I want to tell you about today's sponsors, which is Delve. If compliance is something that is slowing down your deals, I think Delve is an incredible company. They're great for SOC 2, HIPAA, and GDPR. Specifically, Delve uses AI agents to automate compliance end-to-end. So they're going to collect evidence, they're going to fill out security questionnaires, and they're going to customize controls to your actual business so you can get compliant in days, not months, all using their AI agents. You also get a one-on-one Slack support from real security experts who respond very quickly.

1:08And there's over a thousand fast-growing companies that currently trust Delve to close deals faster and stay compliant as they scale. So if you're interested in checking out Delve, you can book a demo at Delve.com. And I will also leave a link in the description to Delve. All right, let's talk about this deal with Grok. So the first thing I'll say is that this is a non-exclusive licensing agreement, meaning Grok can do similar deals with other players, theoretically. As part of this, NVIDIA, though, is also going to hire the founder of Grok, Jonathan Ross. In addition to that, NVIDIA is going to hire the president, Sonny Madra, and a bunch of other employees.

1:45So this feels very much like the acquihire deal that Microsoft did with Inflection when they got Mustafa Suleiman over, who now leads Microsoft. He's Microsoft AI CEO, but he was originally the CEO there. So it feels like one of these deals where they don't want to do an acquisition because acquisitions are subject to scrutiny. So basically, they license all the technology and they hire the founding team, which is basically what an acquisition used to be. But it's kind of different. One thing that Grok said is that Grok Cloud will continue to run independently, like unobstructed. So basically, any companies that had APIs to Grok and were running, you know, all of their AI models through Grok's architecture, which was, you know, like 10 times faster than using like an NVIDIA GPU, anyone that was doing that still has access to that portion of the business.

2:34So it's kind of interesting. According to CNBC, NVIDIA is acquiring the assets from Grok. Well, assets meaning kind of this licensing deal. NVIDIA, anyways, this is all happening for$20 billion. But NVIDIA told a bunch of reporters that this isn't an acquisition. It's just, you know, getting sort of this licensing piece. What's interesting here is that this is essentially coming as NVIDIA is one of the biggest companies in the entire world or the biggest publicly traded company in the entire world. Grok right now was kind of one of the only challengers to NVIDIA. We had TPUs who were invented at Google by this team that now runs Grok in one way or another.

3:14And Google currently for their internal AI models is training on TPUs. NVIDIA saw this as basically their biggest threat. I think they could see that Google had this internally, and all Google has to do is add this to Google Cloud, and anyone can use it, and all of a sudden, NVIDIA is going to be really struggling if Google's scaling up that side of their business. So the best way for them to really compete against Google on new technology is to partner with Grok. Now, Grok doesn't do TPUs. They have something called LPUs, which are language processing units. They claim that these are 10 times faster, and they use a tenth of the energy as a GPU.

3:49So this is a really big claim. Grok CEO Jonathan Ross is known for this sort of innovation. He did help with the TPUs over at Google. So in September, what's impressive is Grok raised$750 million. They had like a$6.9 billion valuation. And their growth has come with a whole bunch of rounds of funding right on top of each other recently. But of course, this is not a new company. This has been around for 15 years. One of the biggest winners in this whole play that you'll see a lot of people on X talking about is Social Capital, who was one of the early investors in Grok. And of course, Chamath Palihapitiya, the podcast host for the All In Podcast, runs Social Capital.

4:29I want to break down the structure of this deal because I think this is one of the biggest winners and it's really, really impressive. So Social Capital initially put$10 million into Grok's seed round. And this was back in April of 2017. So when they did that, the company was only worth$30 million post. And so that single check got them about 33 % of the company. This wasn't the only investment they made, they doubled down in the future. In 2017, they did a$52.3 million investment. It was a convertible note. And so total, they had invested$62.3 million. Okay, so that is a lot of money, but I think this is where it gets really interesting.

5:07Grok raised$300 million at a$1.1 billion valuation back in 2021. And of course, this was like peak ZERP era. A lot of money was flying around, so they were able to raise this big round. And it took them a few years before they were able to raise more. But in 2024, they raised$640 million at a$2.4 billion valuation. And then most recently, like I mentioned, they've raised this kind of big$750 million at a$6.9 billion valuation just in September of this year. What's interesting is, I mean, this was almost a billion dollars,$750 million just in September. But from then till now, the company is, you know, essentially like 2.9x.

5:47So it's almost tripled its valuation with this NVIDIA deal. What's interesting about the NVIDIA deal is not really like a valuation. NVIDIA is just paying$20 billion for kind of this licensing deal. But I mean, for all intents and purposes, we're not calling it an acquisition, but really it's an acquisition. You get the licensing, you get the technology, you get the CEO and the founding team. Like you really get, they're really getting the company. But regardless, the huge win here is for social capital. If you kind of do like a conservative estimate, I will say like obviously social capital was was diluted theoretically every round, but they did have a board seat.

6:21It was the CEO, the CTO, and Social Capital. They had a board seat from the very beginning. So because of that, I think it's likely that they kept some pro rata through the convertible that they had. And so conservatively speaking, I would say they probably own somewhere between 15 and 20 % of rock today. So at a$20 billion, this, you know,$20 billion deal coming down, that's three to$4 billion in value, 62 million dollars in three to four billion dollars out that is a 50 to 65x return in eight years i think for context this single investment is worth more than social capital's entire fund size there's a really interesting tweet breaking down this whole deal um by akash gupta um and what one thing that's interesting that he said is he said the timing is the wildest part chmath chmoth invested in custom ai chips in 2017 years before chai gpt made inference compute a thing he sat on the board until 2121 now nvidia is paying 20 billion dollars in cash because they need crocs lpu architecture so overall i think this is a massive uh windfall for social capital chamoth himself has been posting on x with pictures of jensen huang the ceo of nvidia coming out of a present box while he's opening up his presents under the christmas tree handing him money so obviously he is very excited about this.

7:41People that hate Chamath are pretty mad and spiraling over the fact that Chamath, who's known as like the, some people call him the SPAC scam king. I don't know. He helped a bunch of companies do SPAC public, you know, go public through SPACs during 2021, during the peak hype. And so of course, a lot of those companies have crashed down 90%. I think most of them did. So a lot of people are quite upset about him for his role in that it was kind of this new investment vehicle. And I mean, I won't really weigh in on whether it was good or bad. It was, you know, I mean, it was investing. He was obviously trying something.

8:16It didn't work. But I think people are upset because I think he still made a lot of money in all of those deals. In any case, so all of his haters are mad because now he has, you know, his company is walking away with probably three to four billion dollars. And it's obviously a huge payout for that. Thank you so much for tuning into the AI chat podcast today. If you enjoyed the episode, If you learned anything new, make sure to leave a rating review wherever you get your episodes. And as always, make sure to check out the sponsor Delve.com for all of your compliance needs. You can go find a link to Delve.com in the description.

8:47Have a very Merry Christmas.