Generative AI Venture Capital Flood to Fuel Nvidia, AI Hardware Investment
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As venture capital (VC) flows into generative artificial intelligence (generative AI or GAI)1 startups, where is that money going to be spent? Aside from hiring data scientists and machine learning experts to build and implement large language models, we believe the bulk of the funding is going to be spent on generative AI hardware, fueling demand for chips and systems from Nvidia and peers.
Generative AI Funding Surge
VC funding for generative AI startups surged in the first quarter and may continue at a rapid clip given announced but not-yet-closed deals and new funds raised explicitly focused on GAI. VC funding for GAI companies surged to $1.7 billion in Q1 2023, more than doubling both sequentially and year-over-year, according to Pitchbook data.
Source: Pitchbook, as of April 1, 2023
This surge in VC investment didn’t include the $10 billion investment announced by Microsoft into OpenAI as that deal hadn’t yet closed. And it doesn’t include the $450 million that Anthropic raised from investors including Google and Spark Capital in May, per a Reuters report. These deals suggest a further acceleration in growth in VC investment in GAI startups in Q2 2023.
Where is This Money Being Spent?
Although some of this investment will go to hiring more data scientists and machine learning experts, we believe the bulk of this fundraising will flow to investments in infrastructure for these companies to train and implement generative AI technologies built on large language models. And Nvidia continues to win the bulk of these deals, with an 80% market share for AI chips, according to Omdia.
Including the $10 billion investment by Microsoft into OpenAI, the $450 million for Anthropic, other announced but not yet closed deals tracked by Pitchbook and the Q1 2023 capital raised, there’s nearly $13 billion of dry powder that is set to be deployed. Even if these companies hire 1,000 more people combined at an average salary of $300,000 to $500,000, that still only eats up $300 million to $500 million of the raised capital, leaving significant firepower for infrastructure investments.
The cost of the recently launched Nvidia DGX H100 AI server, purpose-built for massive AI workloads, is around $270,000, according to Semianalysis. Even with bulk purchase discounts that are common in the technology hardware industry and after headcount additions, they could still purchase nearly 50,000 DGX H100 servers with the remaining capital. And with each of these containing eight graphics processing units (GPUs) per server, that’s nearly 400,000 GPUs.
Source: Company Filings, Bloomberg, as of May 31, 2023
How to Invest in This Potential Investment Surge
The Roundhill Generative AI & Technology ETF is the world’s first ETF designed to provide specific exposure to generative AI. The Fund is an actively managed ETF that invests in global equity securities of exchange-traded companies that are driving the development of generative AI tools and technologies. For information on the fund, including access to a full prospectus, the fund’s holdings and how to invest, visit https://www.roundhillinvestments.com/etf/chat/.
Investors should consider the investment objectives, risk, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about Roundhill ETFs please call 1-855-561-5728 or visit the website at www.roundhillinvestments.com/etf/. Read the prospectus or summary prospectus carefully before investing.
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¹Generative artificial intelligence (generative AI or GAI) is a type of artificial intelligence that is designed to create new content, such as images, videos, or music. Unlike traditional AI, which is focused on recognizing and analyzing existing data, generative AI is focused on creating new data. This has the potential to revolutionize many industries, from entertainment and media to healthcare and education.