Summary of Key Points
This news article focuses on the "unusual financing phenomenon" of Etched, a US AI chip unicorn that has completed two rounds of funding with valuations of $10 billion and $20 billion respectively. The company specializes in custom chips based on the Transformer architecture and claims to address the high energy consumption issue associated with NVIDIA GPUs, which has led to its rampant pursuit by investors. However, Etched also faces numerous challenges, including competition from NVIDIA, risks related to its single technological approach, and issues with team management. This phenomenon reflects the anxiety and frenzy of capital in the AI boom.
Detailed Analysis
1. Completing Two Rounds of Financing at the Same Time: $10 Billion vs $20 Billion – A Counterintuitive Financing Miracle
The typical financing process involves a gradual increase in valuation with each round of funding. Yet, Etched sold the same equity at valuations that differ by a factor of two – it's like selling the same cup of coffee to two people for $10 and $20 respectively. Why is this possible? AI chips are currently in the hottest sector, with a very short window of opportunity; if missed, companies could lose out to competitors. Additionally, with an excess of market funds, Etched has the leverage to be selective about its investors. While other startups have done this before, Etched's valuation difference is so significant that even The Wall Street Journal remarked, "The AI boom has given star companies tremendous bargaining power."
2. Etched's Strengths: Transformer-Specific Chips Aimed at Overcoming NVIDIA
NVIDIA GPUs are essential for AI training, but they have a major drawback: they consume a lot of power. Since GPUs are general-purpose devices, much of their computing power is wasted on tasks unrelated to AI training. Etched's SOHU chips are designed specifically for the Transformer architecture, which is at the core of AI and enables models to focus on relevant information, thus saving energy and increasing speed. A single SOHU server can perform as well as 160 NVIDIA H100 GPUs, at a lower cost. The team behind Etched includes individuals with impressive backgrounds (one dropped out of Harvard to start the company) and has received funding from top institutions like Sequoia and a16z, as well as personal investment from Peter Thiel.
3. NVIDIA's Counterattack: A Tough Battle Ahead for Etched
NVIDIA is not idle; it has long recognized the importance of AI and has been optimizing its GPUs. For example, it introduced the Tensor Core in 2017 to accelerate AI computations. Previous attempts by companies like Graphcore to challenge NVIDIA failed due to NVIDIA's substantial financial resources and its ability to design chips from the ground up, allowing for more efficient cost optimization. Whether Etched can break through NVIDIA's dominance is uncertain, given that NVIDIA controls key aspects of the AI ecosystem (such as the CUDA platform), which makes it difficult for customers to switch.
4. Significant Concerns: Single Technology Approach and Team Issues
Etched faces several risks:
- Single Technological Approach: Relying solely on the Transformer architecture means that if a better technology emerges, Etched could be left behind.
- Team Management Issues: Senior talents have left due to conflicts with management, and the chip design was outsourced to India, leading to potential re-evaluation of the product's success.
- Expert Doubts: Chip experts argue that Etched's chips do not offer a significant advantage over NVIDIA GPUs in core AI tasks (such as matrix multiplication), and NVIDIA continues to improve its technology.
5. Is It Capital Frenzy or Real Strength? The "Lottery Mentality" in the AI Boom
Investors' enthusiasm for Etched resembles that of buying lottery tickets: they understand the high failure rate but hope for a huge return if successful. Howard Marks from Oaktree Capital described this as "lottery thinking under extreme odds." Etched itself acknowledges that if the Transformer architecture becomes obsolete, the company will fail. However, they bet that businesses will switch to their chips to save on energy and computing costs. With the funds raised from these two rounds of financing, there is room for adjustment, but success in the long term depends on a combination of "luck and strength."
In Conclusion
Etched's story illustrates the fervor surrounding the AI industry, where capital eagerly seeks the next big winner. However, the chances of success are slim. We can only hope that this time will be different – after all, innovation often requires courage.