Neocloud Groq Aims to Double Value to $8 Billion Amid AI Selloff

A top executive at data center operator Groq has kicked off an audacious bid to double its valuation in about three months while slamming rivals in the space for being too reliant on debt markets.

Alex Davis, executive chairman at the Nvidia Corp.-backed company, has reached out to his investors for a new Series B round at an $8 billion valuation, not including the money raised, according to documents seen by Bloomberg News. Groq, formerly a chipmaker, was most recently valued at $3.15 billion in August, not including the $350 million raised in a round.

The fundraising effort comes at a tumultuous moment for the sector. Public market investors have rapidly sold off shares in data center operators such as CoreWeave Inc. and Nebius Group NV over concerns about the borrowing binge underpinning the AI infrastructure build-out and the potential for greater state-level pushback to data center projects following the US midterm elections. Elon Musk, whose firm SpaceX also offers competes in the market, recently predicted that “200+ neoclouds are going to see guppy-level death and consolidation.”

In a letter to a pool of investors announcing the new fundraising effort, Davis said the startup is better positioned than many of its rivals. Davis, who also founded investment firm and Groq-backer Disruptive, said the company can produce “attractive and growing margins — without using leverage and getting caught in the vicious cycle of existing neoclouds who have all lived off borrowed capital.”

The other neoclouds’ reliance on debt decreases “their ability to thrive as truly successful businesses,” Davis wrote in the letter, which was seen by Bloomberg News. It means they are “simply acting as industry facilitators with massive unmet obligations,” he continued.

Groq and Disruptive declined to comment.

Founded in 2016, Groq was among the companies developing their own hardware to rival market leader Nvidia. Late last year, Nvidia hired away Groq founder and Chief Executive Officer Jonathan Ross and other key employees as part of a $20 billion licensing deal.

The remaining team has since worked to remake the company as a data center operator, catering to the immense demand for computing resources to run AI software — a process known as inference. The company is particularly focused on providing inference for the cybersecurity market.

The latest funding is meant to help Groq meet the “substantial demand for its inference compute through short- and medium-term contracts,” according to the letter.

Davis expects the company’s revenue to grow eightfold next year and hit $2 billion in earnings before interest, taxes, depreciation and amortization by 2028, according to the letter.

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