Nvidia's Israel AI spending spree has downside

Nvidia CEO Jensen Huang
Nvidia CEO Jensen Huang

The US AI chip giant is set to spend $1 billion on two Israeli startups, which some see as part of a 'brain drain' of the country's AI talent.

AI chip giant Nvidia Corp. is currently undertaking one of its biggest moves of the past year by completing the acquisition of two Israeli companies for a combined total of $1 billion. The two startups Run:ai and Deci AI are considered two of the leading companies in Israel in developing AI products, in their respective fields. Their acquisition will add 250 employees in Israel to the world's biggest AI chipmaker, while removing from the market two of the most promising companies in Israel, which according to investors close to the companies, could have continued to raise capital at a valuations of billions of dollars.

Run AI, which is being acquired for $620 million plus $100 million in employee retention grants, has developed an operating system for managing graphics processors, and will allow Nvidia's customers - banks, insurance companies and pharmaceutical firms - to train AI models on a smaller number of processors. Alternatively, it is able to improve the efficiency of any existing processors so that more data can be trained on them.

Unrealized potential

Deci AI, is in an earlier stage of being acquired by Nvidia and the deal will probably go through for an estimated $250-350 million. It is one of only three companies founded in Israel developing large language models (LLMs) - the others are Amnon Shashua's AI21 and Tabnine, which is developing an LLM for software development. It complements Run:AI by allowing Nvidia's customers to "compress" AI models and run them more efficiently. Deci was founded by Google veterans who were discouraged by the high costs that AI processing requires due to the expensive hardware that Nvidia markets for this purpose.

To cut hardware costs, Deci has developed algorithms that replace part of the chips' activity and thus speed up processing power. Initially, the company assisted in activating relatively simple AI apps on end devices such as phones and cars, but over time Deci realized it could develop AI models using the same algorithms that are as good as those of OpenAI and Google, and began training models themselves. Last year, their models surpassed in many parameters those of Meta and French company Mistral, which recently raised capital at a valuation of $5 billion.

Deci could have become the Israeli Mistral. Before accepting Nvidia's offer, the company found itself at a crossroads. It could have raised hundreds of millions of dollars as its French rival Mistral did, and become a major supplier of language models and continue to compete with Google and Meta, or rather focus on the commercial side and sell as many models and as much software as possible to quickly develop its commercial muscle. But ultimately it was enticed by Nvidia's offer. Nvidia already has 4,000 employees in Israel with 250 more added to its number from the two startups.

Will we still produce large companies?

Through the two acquisitions, Nvidia will strengthen its position not only against other chip companies such as Intel and AMD, but also with customers such as Microsoft, Amazon and Google, who provide AI cloud services. This is also good news for Nvidia's Israel development center, which will become prominent in the field of AI software.

But is there any viability for Israel's AI industry outside of Nvidia and will Israel find it difficult to produce large AI companies like France and the UAE? A study released by Stanford University earlier this month presents a bleak picture of Israeli talent in the field. According to the study, negative immigration data in the field of AI in Israel is second only to India, which is considered the world's largest exporter of human capital in the field. As part of the research, data was collected from 10,000 LinkedIn users in each country. The weighting is done in percentages and ranges between the value 1 for a positive trend and between minus 1, indicating a negative migration trend.

In countries such as Canada, the weighting shows a positive immigration trend of 0.96, and 0.4 in the US. In the UAE, where the authorities pay capital to attract talent, a positive immigration trend of 1.48 is recorded. On the other hand, in Israel the trend stands at minus 0.57, second only to India where negative migration in AI is 0.76.

Despite the worrying trend, AI investors in Israel remain optimistic. "We know that Israel has the highest number of AI experts per capita," says AI VC fund Disruptive AI cofounder and general partner. Yorai Fainmesser.

On the brain drain, Fainmesser says it happens mainly in senior positions. "For those who are doctoral students, for example," he explains, "the options abroad are very attractive, more than what awaits them in Israel. There are huge companies that conduct significant research. Many of these brains may not have left the country, but work here in the local branches of the tech giants. If someone works at Nvidia, and we put aside the local contribution, ultimately they contribute to a company that is not Israeli."

"The state has to invest"

Tech placement company Ethosia CEO Eyal Solomon says, "The war has sped up headhunting by global companies for Israelis in the field. During it, it has been revealed how strong Israelis are in a variety of disciplines, such as missiles, drones, closing intelligence circles." Looking ahead, Solomon sees the brain drain continuing through two main methods: startups that serve the needs of giant companies, as well as by attracting selected personnel for relocation programs.

Dell Technologies Capital managing partner Omri Green draws optimism from the two Nvidia acquisitions. He says, "The fact that Nvidia is strengthening its Israel development center in the field of high-level software and hiring another 250 employees is actually good news for Israel's AI industry. "Although the startup companies will not grow independently, but to grow in Nvidia and through it reach throughout the world is a whole that is greater than the sum of its parts, because it is not the value that matters, but the revenue. I am not worried about the sector because of the acquisition deals that are done here. The role of the state is to continue and build the departments and laboratories that will produce the next AI researchers."

In the summer of 2022, the government's AI national plan was unveiled by then Minister of Innovation and Technology Orit Farkash HaCohen. The plan was reportedly being allocated a NIS 2 billion budget to promote research and human capital and set up infrastructure to ensure Israel's technological leadership, alongside implementation of AI in government to improve public sector services.

AI21 Labs cofounder and CEO Prof. Ori Shoham was appointed head of the scientific committee of the national AI program. He told told "Globes" last June, "It's not a big budget. We won't be able to do what everyone else is doing in the world. That's why we will have to be smart, and focus our activities on things that will turn the spotlight on us." He added that the government "Will have to prioritize."

Published by Globes, Israel business news - en.globes.co.il - on April 30, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Nvidia CEO Jensen Huang
Nvidia CEO Jensen Huang
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018