NVIDIA’s Christmas Eve 'Hackquisition' Miracle

Twas the night before Christmas and all through the house, not a creature was stirring, not even a... wait. What's that? Is that Jensen Huang scurrying around doing deals over the holidays?!

It sure is!

Well, presumably he had been working on the deal with the specialized AI chip startup Groq before the holidays started. But I also wouldn't rule out that this deal came together in a hurry given what we know about how he's operated in the past with some mega deals, such as the um, (up to) $100B investment in OpenAI. A deal which came together quickly, perhaps on a trip with a certain President, and perhaps right after the rumors of OpenAI potentially looking at a deal with Google to use their TPUs – we'll come back to that. It was also a deal which was announced three months ago but apparently still has not been finalized, by the way, so there's that.

Anyway, you can't help but wonder if the real key for the timing here may have been to bury it under the spirit of Christmas. Because boy is it a doozy.

CNBC first broke the news with the headline: "Nvidia buying AI chip startup Groq for about $20 billion in its largest acquisition on record". But as it turns out, that wasn't quite right. And actually, it was NVIDIA that wanted to make that clear. They weren't buying Groq, they were merely paying Groq that $20B for a "non-exclusive licensing agreement".

Oh, you've heard that terminology before? Of course you have. It's the magical incantation one must cite in order to summon the spirits of the "hackquisition".

With this deal, NVIDIA is following their Big Tech brethren down this now well-trodden path. Microsoft, Amazon, Google, Meta, and NVIDIA have done deals which aren't technically acquisitions, but effectively are. Because they allow the acquiring – sorry, non-acquiring – company to sort of pick and choose what they want from the acquired – sorry, non-acquired – company in exchange for considerations that can go to... well, sort of anyone they choose. Certainly the investors to get them to sign off on such deals, and often the key employees at those companies. Sometimes the other employees of the companies too, but that's mainly so they don't feel bad and/or raise a stink about the faux-deal. Because when they do that, all hell tends to break loose, at least from a PR-perspective.

Anyway, the first wave of "hackquisitions" were almost more like "hackquihires" because they were simply a way to get access to key talent at those companies and any licensing agreements were seemingly an excuse to make it all a little less blatant. But as such deals have grown in size, they've grown to look even more like actual acquisitions. For example, Meta's nearly-$15B deal with Scale.ai bought them 49% of that company alongside their key talent, namely CEO Alexandr Wang. Why? Presumably Meta wanted more for that amount of money and they thought Scale, a hot company at the time, might still give them some upside. Of course, they were also effectively gutting said company and it seems decidedly less hot now – especially since many of their customers were Meta competitors who no longer wanted to send their data to Scale – shocking, I know. Still, Meta also likely believed they could use Scale's service to help with their future model training – efforts which were rebooting alongside bringing Wang on board.

NVIDIA's Groq deal seemingly has similarities. Namely, the key was clearly to bring CEO Jonathan Ross on board. And every story also points to company president Sunny Madra being crucial as well. But beyond that, it sounds like NVIDIA may actually care about some of the IP rights here (which they're presumably getting a license to with their "non-exclusive licensing agreement"), to be able to leverage Groq's techniques in would-be future chips.

In that way, "non-exclusive" feels less important here – that's another framing to make it seem less like an acquisition, but is anyone else really getting access to this IP now? Regardless, NVIDIA probably feels confident that with Ross and Madra – not to mention their own in-house prowess – they'll be able to implement it and execute upon it far better than anyone else. And they're undoubtedly not wrong.

And that points to another layer to this as well. Ross is not just a co-founder of Groq, he's also the creator of the TPU – something which he cites in his own bio. You may recall the TPU was last a part of a major news cycle when Jensen Huang was "delighted" about Google's success with their AI chips. How do I know that NVIDIA is actually not so "delighted" about Google's success here and is in fact sweating the rise of the TPU? Well, this deal, for one!

NVIDIA is paying $20B to grab some talent and license some tech. Twenty billion dollars. It's one of the largest deals of any sort in the history of deals. And they're technically acquiring nothing.

Granted, Groq's technology and first batch of chips have been divisive in the industry. Some seem certain they're the future of inference, others aren't sure they're the future of anything. Maybe NVIDIA is fully bought in on the former, or maybe they simply want access to key talent that created the TPU – and, importantly, to keep them away from anyone else who might try to make their own XPUs.

Many are trying, of course. But only Google has really found some level of success thus far. But that level of success has seen them not only train their own state-of-the-art models to rival any of those trained on NVIDIA chips, but also now growing talk about how much more efficient the TPU is versus the GPU. In an era of growing energy fears, this is... potentially a real problem for NVIDIA. To the point where they probably need to have their own TPU option – even if they remain fully committed to their GPUs as being the bigger and better option.

Certainly they need to counter this narrative on the inference side. And again, that's where Groq was focused. Maybe their chips were legit, maybe they weren't, or maybe they weren't yet, but even $20B is a relatively small price to pay to effectively lock this team and tech up. NVIDIA made $32B in profit last quarter. This potentially helps them protect those profits.

Speaking of... one can't help but wonder if this isn't the "hackquisition" that breaks the regulators' back, as it were. They've looked into these deals before and largely haven't pursued them. But this is a situation where a "regular" acquisition between NVIDIA and Groq almost certainly would have been blocked simply because NVIDIA controls over 90% of the AI chip market.

So what will regulators do here? Certainly it seems smart of Jensen to try this under the current administration versus any other. It's a group that keeps trying to help him out with China – for a fee, naturally – even if China continues to be a problem on their end.

Regardless – and this remains a key to these "hackqusitions" – NVIDIA will get access to Groq and their team fast with this structure. Will anyone even remember the $20B deal after the holidays? Nothing like some last-minute Christmas shopping!