According to reports, Graphcore Ltd., a UK-based AI chip startup, is exploring a sale as it has struggled to compete with rivals such as Nvidia Corp. in the booming AI chip market.

Graphcore has been in discussions with major tech companies for potential transactions to raise new funds and offset significant losses. The potential deal could value the company at over $500 million, but given the current scrutiny and concerns surrounding AI technology, it will be subject to review by UK national security officials.

In December 2020, Graphcore raised $222 million at a valuation of $2.77 billion and developed AI chips such as the Bow IPU, which was launched in March last year. The Bow IPU processor, jointly designed with TSMC Ltd., features chip stacking design and can handle up to 3.5 quadrillion operations per second.

The company sells these processors as part of a computing system called Bow-2000 IPU Machine. Each system includes four Bow IPU processors, providing a processing capacity of 1.4 exaFLOPS. One exaFLOP is equivalent to one quintillion floating-point operations per second.

Customers in need of additional processing power can combine multiple Bow-2000 IPU Machines into clusters called Bow Pods, which can contain 16 to 1025 processors. These processors claimed to outperform Nvidia Corp.'s DGX A100 devices by five times in performance and at half the cost for a Bow Pod with 16 processors.

While Graphcore's products may seem attractive on paper, the company has struggled to keep up with the latest developments in AI chip design, while Nvidia regularly introduces new and more advanced chips, such as the RTX 2000 Ada Generation GPU released on February 12. In short, the rapid development of AI chip development requires substantial funding, which Graphcore lacks.

Reports also suggest that Graphcore has discussed raising additional funds with investors but has been unsuccessful. Furthermore, the company was expected to complete a new round of financing in the third quarter of last year, but no details about the funding round were disclosed.

Potential buyers for Graphcore include UK semiconductor and software design company Arm Holdings plc, Japanese tech giant SoftBank Group Corp., and Open AI.

Further evidence of a potential sale is that Chrysalis Investments Ltd., an investment fund that holds shares in Graphcore, stated in December last year that one of the companies in its portfolio is up for sale. A few weeks later, the fund doubled its valuation of Graphcore, raising it from a previous downward revision to $528 million. Valuations are typically not revised unless something is happening.