Sequoia Capital vs. Andreessen Horowitz: GPU Investment Showdown

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The two most influential venture capital firms, Sequoia Capital and Andreessen Horowitz, have strikingly different perspectives on the demand for graphics processing units (GPUs), the critical resource for artificial intelligence companies.

Andreessen Horowitz has been stockpiling GPUs and renting them to startups. This suggests the firm doesn’t anticipate the GPU bottleneck to ease anytime soon. On the other hand, Sequoia Capital is of the opinion that GPU constraints have already peaked, and the increased production will eventually deplete investor cash reserves.

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Andreessen Horowitz’s decision to secure its own GPU clusters isn’t surprising. The firm has aggressively pursued AI startups, including competitors to OpenAI, like Mistral, and Elon Musk’s xAI. In the last two years alone, Andreessen Horowitz has led 19 generative AI deals worth an estimated $1.3 billion. This figure is in addition to xAI’s substantial $6 billion fundraise, in which Andreessen Horowitz participated. The firm has also raised two dedicated AI funds focused on infrastructure and application development, signaling their intense interest in supporting AI startups.

Conversely, Sequoia Capital has also been active, leading roughly two dozen AI investments over the same period, totaling $400 million. This focus reflects their strategy of making smaller investments in young companies, which could potentially grow as the firm makes follow-on investments in its portfolio companies, such as the legal AI startup Harvey and LangChain.

The contrasting approaches highlight differing philosophies on investment strategy. Many argue that Sequoia’s cautious strategy could yield better long-term returns, while Andreessen Horowitz appears to be spending aggressively on resources that are temporarily in high demand. The outcome remains to be seen.

David Cahn, a Sequoia partner, indicated in a recent blog post that GPU supply constraints peaked at the end of 2023. At that time, startups were desperately seeking VCs for help in accessing GPUs. Cahn called for industry participants to “remain level-headed” and avoid the illusion that rapid wealth and the imminent arrival of artificial general intelligence necessitate stockpiling GPUs.

Meanwhile, Andreessen Horowitz continues to expand its GPU rental program, aiming to support even more companies. The firm believes that providing startups with GPU access as part of its cash investment package will help secure more deals. This ambitious plan involves substantial risk; if GPUs become more readily available, the firm could end up holding an excessive supply. Andreessen Horowitz has likely already invested hundreds of millions of dollars in securing these chips. Nevertheless, the firm’s willingness to take on this risk is precisely what makes the initiative appealing to startups.