Nvidia's $20 billion Groq deal faces lawsuit alleging startup's stockholders were shortchanged

Nvidia's $20 billion deal to acquire assets from Groq, an AI chip designer, "squeezed out" stockholders, a lawsuit brought by ex-engineers at the startup alleges.

Joshua Rubin and Benjamin Serebrin alleged that the deal offered stockholders a "lowball" price, in documents filed on Oct. 2 at the Court of Chancery of the State of Delaware.

Rubin and Serebrin both left Groq before its Nvidia deal was announced, per their LinkedIn profiles, but held stock in the company, per their lawsuit.

In December, Groq announced it had entered into a licensing agreement with Nvidia for the company's inference technology. Groq founder and CEO Jonathan Ross and its president, Sunny Madra, joined the $5 trillion chip giant as part of the deal, along with other senior leaders.

Groq said it would continue as an "independent company" and has raised around $1 billion since June, from investors including Nvidia.

Rubin and Serebrin's case alleges that Groq's board of directors "sold the company to Nvidia without the stockholder vote Delaware law requires and without any process designed to test or maximize the value of what Nvidia bought."

"Our licensing agreement with NVIDIA delivered exceptional value for Groq, our investors, and our employees," a Groq spokesperson told CNBC.

"This lawsuit is meritless and we will vigorously defend ourselves against it," they added. "We remain focused on serving our customers and building the world's leading AI inference cloud."

Nvidia has been approached for comment.

The $20 billion deal

The case alleges that Nvidia allocated "$17 billion to a license it labeled "non-exclusive," set aside an additional $3 billion of NVIDIA restricted stock units ("RSUs") for the Groq employees who moved with the technology, and positioned the investment funds that designated Groq Board members to enjoy windfall returns from the later squeeze-out."

Approximately 150 to 200 Groq engineers became Nvidia employees as part of the deal, according to the case.