The Zhitong Finance App learned that, according to reports, executives of data center operator Groq launched a bold plan to double the company's valuation within about three months, while criticizing competitors in this field for excessive reliance on the debt market. According to the documents, Alex Davis, the executive chairman of the Nvidia (NVDA.US) -backed company, has reached out to investors to seek a new round of B financing at a valuation of 8 billion US dollars (not including the funds raised in this round). Groq, formerly a chipmaker, was last valued at $3.5 billion in August.
This round of financing comes at a time when the industry is in turmoil. Investors recently quickly sold shares of data center operators such as CoreWeave (CRWV.US) and Nebius (NBIS.US) due to market concerns about the borrowing frenzy that supports the AI infrastructure boom and that data center projects may face greater resistance at the state level after the US midterm elections. Musk's SpaceX (SPCX.US) is also competing in this market. He recently predicted that “more than 200 new cloud platforms will die out and integrate like small fry.”
Davis announced the new funding plan in a letter to investors and said the startup had an advantage over many of its competitors. Davis is also the founder of the investment company Disruptive, which also invested in Groq. He said Groq can achieve “impressive and growing profit margins — without using leverage and without falling into a vicious cycle where existing cloud service companies rely on borrowing capital.”
In his letter, Davis wrote that the dependence of other new cloud service providers on debt undermines their “ability to thrive as truly successful businesses.” He went on to say that this meant that they “only act as industry boosters and are burdened with a large number of unfulfilled obligations.”
Groq was founded in 2016 and was one of many companies at the time to develop proprietary hardware to compete with market leader Nvidia. At the end of last year, Nvidia robbed Groq founder and CEO Jonathan Ross and several other key employees with a $20 billion licensing agreement.
The remaining team has since worked to reshape the company as a data center operator to meet the huge demand for computing resources to run AI software—a process called inference. The company focuses on providing inference services to the cybersecurity market.
According to the letter above, the latest funding is aimed at helping Groq meet “the huge demand for its reasoning power” through short- and medium-term contracts.
Davis said in the letter that he expects the company's revenue to grow eight times next year, and profit before interest, tax, depreciation and amortization (EBITDA) will reach 2 billion US dollars by 2028.