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July 21, 2021updated 31 Mar 2023 8:49am

AI semiconductor funding rockets as demand for advanced chips grows

Semiconductors that can handle AI workloads are in demand for data centres and autonomous vehicles. VC funds are backing their manufacturers like never before.

By Matthew Gooding and Victor Vladev

Venture capital funding has been flowing into the semiconductor industry like never before at the start of 2021, with financiers keen to back artificial intelligence chip makers as demand continues to grow for processors that can handle advanced applications.

New data from Pitchbook shows that $1.7bn was invested into artificial intelligence and machine learning chip makers in the first quarter of 2021. The figures from the Artificial Intelligence and Machine Learning VC Activity report show that more money was secured by companies in the sector in Q1 2021 than in the whole of 2017.

AI semiconductor funding is booming

Semiconductors are in high demand at the moment thanks to the global chip shortage, and this growing interest from investors in AI-specific chips reflects wider market trends. Whereas traditional, monolithic chips would handle all sorts of computing tasks, AI semiconductors are designed specifically to handle complex workloads carried out by AI systems. This capability is particularly important for cloud computing providers as they begin to offer more advanced AI tools to their customers.

Speaking to Tech Monitor earlier this year, analyst Mike Orme, who covers the semiconductor market for research company GlobalData, explained: "The main theme that's unfolding in cloud computing is the need for faster throughput, lower power draw data centres."

He continued: "This will increasingly call for low-power system-on-chips involving multiple functions on the same chip, or multiple chips in 3D packages, rather than monolithic motherboard-based chips."

Elsewhere, AI chips are being put to use in the next generation of vehicles, particularly those with autonomous driving elements, and play an important role in processing information from edge devices. With this growing market opportunity, it's no surprise that investors are keen to fund companies working on next-generation processors.

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Big AI semiconductor IPOs could be on the way

Investors will have also noted that AI semiconductor businesses can provide lucrative returns. So far, backers of these companies have made $10.84bn from exits in 2021, the Pitchbook data shows.

Going public via an initial public offering (IPO) is increasingly popular for these companies, as opposed to being acquired by larger rivals.

The value of AI chip-related IPOs could grow in the coming months, with Horizon Robotics, a Chinese-based AI chip start-up, said to be weighing up the possibility of a floatation worth up to $1bn before the end of year, Bloomberg reports. The company, which is backed by some of the semiconductor industry's biggest names, including Intel and Korean manufacturer SK Hynix, closed a $1.5bn Series C round in June, and is focused on making AI chips for autonomous vehicles and other IoT devices.

British AI chipmaker Graphcore may follow Horizon onto the public markets, though this may be a longer-term project. In December it raised $222m and has its sights firmly set on a future on the public markets. “Our investors are some of the world’s biggest technology investors, these are not people who are trading in and out, they believe in [our] story,” CEO Nigel Toon told Tech Monitor in May. “They’re investing for the long term and ultimately they’ve invested in us as a private company because they see the possibility for us to become public, long term and independent."

AI semiconductor funding still lags behind other areas of machine learning

Despite the apparent boom, Horizon is the only chipmaker to feature in the top ten list of VC-backed artificial intelligence and machine learning companies in the Pitchbook report. ByteDance, the company behind social media platform TikTok, leads the way when it comes to investment raised, with other notable names in the top ten including robotic process automation specialist UIPath and cloud data platform DataBricks.

If funding for AI semiconductor companies continues to grow, expect to see more names from the industry featuring in the top ten in future years.

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