Key Takeaways:
- The UK government is conducting a national security review of SoftBank’s proposed acquisition of British AI company Graphcore.
- Graphcore, a Bristol-based AI semiconductor firm, has faced challenges including competition from Nvidia and declining revenues.
- SoftBank’s acquisition, valued at over $500 million, is significantly lower than Graphcore’s $2.8 billion valuation in 2020.
- The review by the Investment Security Unit reflects concerns over foreign investments in critical UK technologies.
- Graphcore’s potential sale is seen as crucial for its survival, with SoftBank aiming to bolster its AI technology portfolio.
A proposed acquisition of the British artificial intelligence company Graphcore by Japanese tech conglomerate SoftBank is undergoing a national security review by the UK government.
Conducted by the Business Department’s Investment Security Unit (ISU), this review highlights concerns over foreign acquisitions of sensitive UK technology firms.
Graphcore, based in Bristol, is a notable player in AI semiconductor development but has faced significant challenges, including stiff competition from Nvidia and revenue declines due to export controls in China.
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SoftBank, which already owns a majority stake in semiconductor company Arm, has been negotiating the acquisition for months. The deal, reportedly worth over $500 million, is significantly less than Graphcore’s $2.8 billion valuation in 2020.
SoftBank’s founder and CEO, Masayoshi Son, has a strong commitment to investing in AI technologies, recently raising $1.8 billion for such endeavours.
The ISU’s scrutiny of the deal reflects heightened sensitivity towards national security risks associated with foreign investments in critical technologies.
Established under national security laws in 2022, the ISU reviews hundreds of transactions annually, focusing on those involving technologies crucial to defence and infrastructure. The ISU’s investigation is considered the final hurdle before officially announcing the deal.
Graphcore has struggled to gain market traction, and the potential acquisition by SoftBank is seen as a lifeline for the company, which has been seeking new funding to continue operations.
Talks with SoftBank reportedly reached a breakthrough recently, leading to an update in Graphcore’s share structure to facilitate a return of capital to shareholders. Several shareholders have increased the value of their stakes in anticipation of the deal.
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However, the sale price of $450 million to $1 billion may result in losses for some early investors, with the company’s structure allowing investors from a 2020 funding round to break even, while earlier backers may only recover a fraction of their investments.
Masayoshi Son’s vision for AI includes significant investments in companies developing AI technologies. SoftBank recently led a $1 billion funding round for British driverless car company Wayve.
Son has declared his ambition to realize artificial superintelligence (ASI), highlighting the strategic importance of acquiring AI companies like Graphcore.
Why would you buy employees whose products you think worthless?
— ArtSums (@ArticleSums) May 10, 2024
Graphcore has been exploring a sale to cover heavy losses despite the AI boom, with significant job cuts and office closures to reduce costs. Rival AI companies like Nvidia have seen soaring valuations, adding pressure on Graphcore.
The potential acquisition by SoftBank follows similar trends, as other tech giants like Arm and OpenAI have also been rumoured as potential buyers.
The national security review of SoftBank’s proposed acquisition of Graphcore underscores the UK’s cautious approach to foreign investments in sensitive technology sectors.
NVIDIA was always going to be a very tough competitor… but Graphcore’s design choices sure didn’t help, quite the opposite…
— Longhorn (@never_released) February 19, 2024
As the review progresses, the outcome will significantly impact Graphcore’s future and SoftBank’s AI investment strategy. The deal, if approved, could provide much-needed support for Graphcore while aligning with SoftBank’s ambitious AI goals.
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