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Intel is paying more than $400 million to buy deep-learning startup Nervana Systems

The chip giant is betting that machine learning is going to be a big deal in the data center.

Intel data center chief Diane Bryant, with Nervana co-founders Naveen Rao, Arjun Bansal, Amir Khosrowshahi and Intel vice president Jason Waxman (left to right)

Intel is snapping up deep learning startup Nervana Systems in a huge bet that artificial intelligence represents the next big shift inside corporate data centers.

The chip giant isn’t actually saying how much it is paying, but a source with knowledge of the deal said it is valued at around $408 million.

That’s some serious cheddar for a 48-person startup.

Intel vice president Jason Waxman told Recode that the shift to artificial intelligence could dwarf the move to cloud computing. Machine learning, he said, is needed as we move from a world in which people control a couple of devices that connect to the Internet to one in which billions of devices are connecting and talking to one another.

“There is far more data being given off by these machines than people can possibly sift through,” Waxman said.

Nervana’s approach has some direct appeal to a chipmaker like Intel in that the company has been working to bring machine learning all the way into the silicon, rather than simply making software that can run on top of anyone’s cluster of graphics chips.

The company is led by former Qualcomm researcher Naveen Rao and has raised $25 million in venture funding and also has a contract to work with In-Q-tel, the U.S. intelligence community’s venture arm. Rao said that the deal didn’t reflect any hurdles in getting more capital to stay independent.

“Raising money was not the problem,” he said. “That was going to be relatively easy.” But by selling to Intel, he said, “we have access to technology we'd never dream about.”

In data centers, Intel is operating from a position of strength as its chips dominate.

That’s in contrast to the mobile world, where the company is investing big in internet-of-things efforts after having essentially missed out on the smartphone revolution.

“There's always a next wave,” Waxman said, noting that corporate computing has already gone from mainframes to client-server and now on to cloud computing. “I firmly believe this is not only the next wave but something that will dwarf the last wave.”

That said, he knows that people’s eyes start to roll whenever big companies talk about catching the next wave. Waxman admits that the hype got a little strong with artificial intelligence and deep learning, but says that reality has started to surpass the hype.

“This is a real thing at Baidu; this is a real thing at Google,” he said. “They are using deep learning techniques. It is not just papers any more.”

The sale of Nervana also represents the first big exit for Andy Rubin’s Playground Global, which was an investor. Other investors include Data Collective, DFJ, Lux Capital and Allen & Co.

Steve Jurvetson, who lead the early investment in Nervana, said he was drawn to the unique background of the startup founders. “This is a group that’s not been walking the usual path,” he said.

The investor is also incredibly bullish on deep learning, which he sees as transformative for the business world. “I think it’s the biggest advance since the scientific method itself,” he added.

(Update: An earlier version of the story indicated the purchase price was more than $350 million, according to a source. Multiple investors told Recode the purchase price was significantly above that price, with one pegging it at $408 million.

Mark Bergen contributed reporting.

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