Nvidia 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.
We'll see you next time.
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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.
So this feels very much like the Aqua hire 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, you know, subject to scrutiny.
So basically they license all the technology and they hire the founding team, which is like 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 as an like independently, unobstructed.
So basically any companies that had APIs to Grok and were running all of their AI models through Grok's architecture, which was 10 times faster than using an NVIDIA GPU Anyone that was doing that still has access to that portion of the business.
So 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 the, you know, 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 and google currently, for their internal ai models, is training on tpus.
Nvidia saw this as basically their biggest threat.
I think they 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.
So 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.
I 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.
Grok 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 69 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.
And But from then till now, the company is, you know, essentially like 2.9x.
So it's almost tripled its valuation with this NVIDIA deal.
And what's interesting about the NVIDIA deal, it's 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 has was diluted theoretically every round, but they did have a board seat.
It 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 ROC today.
So at a $20 billion, this $20 billion deal coming down, that's $3 to $4 billion in value.
$62 million in, $3 to $4 billion 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 by Akash Gupta.
And one thing that's interesting that he said is he said, the timing is the wildest part.
Chamath invested in custom AI chips in 2017, years before ChatGPT made inference compute a thing.
He sat on the board until 2021.
Now NVIDIA is paying $20 billion in cash because they need Crocs LPU architecture.
So overall, I think this is a massive windfall for social capital.
Chamath 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 his presents under the Christmas tree, handing him money.
So obviously he is very excited about this.
People 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.
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.
It 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.
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Have a very Merry Christmas.
