SoftBank’s $500M Bet: Awaiting Security Green Light on Graphcore Deal

by | Jul 2, 2024

The potential acquisition of British artificial intelligence firm Graphcore by Japanese tech giant SoftBank has set off a national security review by the United Kingdom. This heightened scrutiny is indicative of increasing concerns regarding foreign entities targeting sensitive UK technologies, particularly within the artificial intelligence (AI) and semiconductor sectors.

SoftBank, which already possesses a significant stake in semiconductor powerhouse Arm, is contemplating a deal for Graphcore valued at over $500 million (£400 million). Although this figure is substantially lower than the $2.8 billion valuation Graphcore enjoyed in 2020, it still represents a substantial investment in the UK’s technology landscape. The final step before the deal can be publicized is the government review currently underway by the Business Department’s investment security unit (ISU).

Established in 2022 under national security legislation, the ISU is charged with monitoring investments in companies involved in cutting-edge technology. Hundreds of transactions are reviewed annually, with most passing without restrictions. However, the examination of Graphcore’s acquisition is particularly rigorous due to the company’s work in developing semiconductors tailored for AI software. These technologies are increasingly viewed as crucial to national defense and infrastructure.

A legal expert from the City remarked, “It would be shocking if the Government wasn’t looking at this given the nature of Graphcore’s business and the sensitivity that the UK has had about acquisitions for UK companies in this sector.” This statement underscores the heightened vigilance surrounding foreign investments in the UK’s tech sector.

Neither SoftBank nor Graphcore have confirmed the takeover discussions, and Graphcore employees are reportedly in the dark about the developments. Nonetheless, senior investors have been kept informed, indicating that the deal is advancing behind the scenes. Graphcore has encountered difficulties in achieving market traction, largely due to Nvidia’s dominance. Nvidia’s graphics processors are integral to the development and operation of AI software, such as OpenAI’s ChatGPT. The demand for Nvidia’s chips has skyrocketed, propelling the US company’s valuation to over $3 trillion and briefly making it the world’s most valuable business in June.

The scrutiny of Graphcore’s acquisition by SoftBank is not an isolated event. The UK government has previously intervened in technology deals involving national security concerns. For instance, the proposed $40 billion acquisition of Arm by Nvidia underwent a similar review, ultimately leading to the deal’s collapse due to regulatory challenges.

The escalating scrutiny of AI and semiconductor technologies underscores the strategic importance of these sectors. As AI continues to evolve, the chips and software driving these innovations are becoming essential components of national defense and critical infrastructure. Governments worldwide are increasingly recognizing the necessity to protect these technologies from foreign control.

The outcome of the Graphcore review will have significant implications for the UK’s technology industry and its stance on foreign investments. If the deal is approved, it could open the door for further foreign investments in the UK’s tech sector. Conversely, if the deal is blocked, it could indicate a more protectionist approach, prioritizing national security over foreign investment.

The proposed acquisition of Graphcore by SoftBank underscores the delicate balance between encouraging foreign investment and ensuring national security. As AI and semiconductor technologies become ever more crucial, governments must navigate these complex issues to safeguard their strategic interests while promoting innovation and growth.