The assumption that the boom of artificial intelligence systems has provided a lucrative opportunity for all market players could be considered naïve, as the rapid dynamics of NVIDIA or Arm stock prices are not indicative of overall market realities. This is illustrated by the case of UK-based AI accelerator developer, Graphcore, which is reportedly scrambling to cover losses and willing to sell its assets to foreign investors according to local press reports.
Graphcore’s Financial Struggles
According to The Telegraph, Graphcore’s revenues fell by 46% last year while its losses continued to expand. In the third quarter, the company attempted to attract investors to boost working capital and cover these losses, but these negotiations did not bear fruit. Now, rumors suggest that Graphcore is seeking investors outside of the UK, prepared to offer substantial stock packages in exchange for financial injection which could reach or even exceed $500 million.
Potential Investors and Regulatory Hurdles
Certainly, any deal involving foreign investors acquiring some of Graphcore’s assets would require approval from UK authorities to satisfy national security concerns. Potential buyers like British processor architecture developer Arm and parent company SoftBank have been mentioned, but both denied discussions with Graphcore. OpenAI, the ubiquitous startup behind ChatGPT, was also reported to express interest in Graphcore’s assets, likely due to founder Sam Altman’s desire to develop proprietary computation accelerators and lessen its reliance on NVIDIA’s hardware solutions.
Increasing Difficulties and Investor’s Concern
Graphcore was forced to terminate its operations in China due to US sanctions. Moreover, existing investors in the business are not unanimous about increasing their stakes, with at least two funds reducing their shares amid Graphcore’s poor market performance. To date, the company has managed to raise over $700 million with its 2020 capitalization valued at $2.8 billion. Interestingly, early Graphcore investor Microsoft remains a primary investor in OpenAI.
Graphcore’s revenue fell from $5 million to $2.7 million in 2022, while its losses increased by 11% to $204.6 million. Having ended 2022 with $157 million in liquid assets, Graphcore, in May of the same year, announced its need for additional investment. Initially, the company had anticipated requiring further financing no sooner than the third quarter of 2024. Analysts at Jon Peddie Research believe that the $700 million raised by Graphcore is insufficient to successfully compete with NVIDIA, Intel, and AMD, and it needs at least double this amount to succeed in this arena. In a bid to reduce expenses, Graphcore has already downsized its workforce and shut down foreign offices. It comes as no surprise then, that the company is seeking new investors to sustain its operations.
