TECHNOLOGY · AI · CYBERSECURITY · THE SYSTEMS SHAPING BUSINESS
Two former Groq engineers have sued the AI chip startup's former board and former CEO Jonathan Ross, alleging that the company's $20 billion deal with Nvidia handed over its chip technology and nearly all its engineers while shortchanging other shareholders, Tom's Hardware reported Thursday. The proposed class action was unsealed Monday, Oct. 5, in Delaware's Court of Chancery.
What Happened
The plaintiffs, Benjamin Serebrin and Joshua Rubin, challenge the structure of the deal, which paired a $17 billion license fee for all Groq backers with a separate $3 billion pool of Nvidia stock for engineers who moved to Nvidia. According to the suit, Nvidia hired nearly all of Groq's engineers, as many as 200, along with the language processing unit, or LPU, design they built.
The complaint alleges that the board was conflicted and failed to get the best terms for every shareholder, denying some of them a vote. It says Ross and other top employees were allowed to take a discount on their shares and be paid separately for following the technology to Nvidia. It also names four funds with seats on Groq's board, BlackRock, Social Capital, Infinitum and Disruptive, as "conflicted funds" that profited by staying invested in the remaining Groq. The funds are not defendants.
RelatedThe plaintiffs make two further arguments. Because Nvidia did not buy Groq outright, they say, the $17 billion license payment was taxable income at the company level. And Groq's later Series A valued the remaining company above the price paid to shareholders who were bought out. The plaintiffs acknowledge that no Delaware ruling has directly addressed the question the case raises.
Groq told CNBC the suit is meritless and that its licensing agreement with Nvidia delivered exceptional value for the company, its investors and its employees.
Why It Matters
Nvidia's annual report shows how much of the deal's value sat with people rather than chips. It booked $14.4 billion of the license as goodwill attributed primarily to the workforce and future development of the licensed technology, and $2.5 billion for the technology itself. Nvidia paid $13 billion at closing, with $4 billion, including imputed interest, due within one year, and its filing says no customer contracts, existing products or equity interests were bought.
License-plus-hire arrangements have become a common way for large tech companies to absorb AI startups without buying them outright. The Justice Department sent Nvidia a formal request for information about the Groq deal, The New York Times reported in September, and Federal Trade Commission Chair Andrew Ferguson said in January that the agency had begun examining acqui-hires to make sure they are not being used to sidestep merger review. A ruling for the plaintiffs could add a shareholder-litigation risk to that regulatory scrutiny.
What Groq Does Now
Groq said when the deal was announced that it would keep operating as an independent company. It now runs AI cloud capacity across 13 data centers and expects to grow from 54 megawatts to more than 200 megawatts in 2027. In August it raised a $350 million Series A at a $3.5 billion valuation and joined the Nvidia Cloud Partner program. The company is among the first to deploy Nvidia's Groq 3 LPX racks, which are built on the LPU design it licensed to Nvidia, and the Financial Times reported that Groq has dropped chip design to focus entirely on cloud computing.
What to Watch
The Chancery case is at an early stage, and court filings from the former board and Ross will show how they answer the allegations. The Justice Department's inquiry remains open. The outcome could influence how future deals are structured, including Nvidia's pending agreement to acquire Hugging Face, which pairs a purchase price with equity for employees who join Nvidia but, unlike the Groq arrangement, is an outright acquisition of the company.
