Nvidia-Groq deal keeps fiction of competition alive: analyst says

It’s been two days since news broke that Nvidia was spending $20 billion to acquire top talent from Groq in what the chip startup called a “non-exclusive licensing agreement.”

Nvidia, the world’s most valuable company, hasn’t issued a press release or regulatory filing and, according to a spokesperson, is only confirming the contents of Groq’s 90-word blog post published after the close of holiday-shortened trading on Wednesday.

“They’re so big now that they can do a $20 billion deal on Christmas Eve with no press release and nobody bats an eye,” said Stacy Rasgon, an analyst at Bernstein, in a Friday interview with CNBC’s “Squawk on the Street.”

While neither company confirmed the price tag, CNBC learned from Groq lead investor Alex Davis on Wednesday that Nvidia had agreed to buy assets from Groq, a designer of high-performance artificial intelligence accelerator chips, for $20 billion in cash. Davis’ firm, Disruptive, has invested more than half a billion dollars in Groq and led the startup’s latest financing round in September at a $6.9 billion valuation.

Groq founder and CEO Jonathan Ross along with Sunny Madra, the company’s president, and other senior leaders “will join Nvidia to help advance and scale the licensed technology,” the startup said in the post, adding that the it will continue as an “independent company,” led by finance chief Simon Edwards.

As an acquisition, Groq would mark by far Nvidia’s largest in its 32-year history. Its biggest prior purchase happened in 2019, when Nvidia bought Israeli chip designer Mellanox for close to $7 billion.

But Nvidia is instead following a playbook used by other tech giants over the last couple years, spending billions of dollars to hire top talent in AI and to get access to key technology through licensing agreements.

It’s a strategy that’s been employed by Meta, Google, Microsoft and Amazon. Nvidia itself has previously used the tactic, shelling out more than $900 million in September to hire Enfabrica CEO Rochan Sankar and other employees at the AI hardware startup, and to license the company’s technology, CNBC reported at the time.

By avoiding traditional acquisitions, tech companies have been able to skirt some level of antitrust scrutiny and quickly close deals to bring in the people they most covet.

“Antitrust would seem to be the primary risk here, though structuring the deal as a non-exclusive license may keep the fiction of competition alive,” Rasgon wrote in a Thursday note to clients. His firm recommends buying Nvidia shares and has a $275 price target on the stock.

Shares of Nvidia rose about 2% on Friday to $192.40. The stock is up 43% this year and is up thirteenfold since the end of 2022, when generative AI started taking off following…