(Bloomberg) -- Baidu Inc.’s chip affiliate is looking to raise 2 billion yuan ($317 million) in a new funding round, people familiar with the matter said, as venture capitalists in China shift away from internet businesses and hone in on core technologies like semiconductors, favored by Beijing.
Kunlun is in advanced talks with investors for its second fundraising round, said the people, who asked not to be identified as the information is private. The investment, if finalized, would lift the Beijing-based startup’s valuation to as much as 17 billion yuan ($2.5 billion), one of the people said, up from 13 billion yuan at its first funding round a little over a year ago.
Discussions are still ongoing and details such as the deal size and valuation are subject to change, said the people. Representatives from Kunlun and Baidu declined to comment.
With Chinese regulators stepping up oversight of the country’s once freewheeling internet sector, startups with fundamental technologies like chipmaking are fielding heated interest from investors. The amount of venture capital going into semiconductor startups hit $8.8 billion in 2021 alone, up three-fold from a year ago, according to market research firm Preqin.
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Kunlun, which specializes in artificial intelligence chips, has recently started mass producing microchips that pack more computational power by using 7-nanometer technology. The firm has deployed its AI chips to power Baidu’s core searching services, and the new financing will help it further expand its client base beyond its parent.
Earlier last year, venture firms including IDG Capital and Legend Holdings Ltd.’s venture arm invested 1.5 billion yuan in Kunlun, before it was spun off from the Chinese search giant.
Chinese leaders are keen to cultivate a home-grown semiconductor industry and reduce their reliance on American technology. Under former President Donald Trump, Washington imposed a series of sanctions on Chinese chipmakers including Semiconductor Manufacturing International Corp. and Huawei Technologies Co.’s HiSilicon unit, cutting off vital equipment and knowhow needed to make the most advanced chips that power everything from mobile phones to data centers.
In response, Chinese president Xi Jinping’s administration pledged to boost spending and drive research into cutting-edge chips and AI as part of its latest five-year plan, laying out a technological blueprint to vie for global influence with the U.S.
Demand for semiconductors capable of processing information quickly have increased in recent years, fueled by a boom in high-resolution video games, cryptocurrency mining and other data-intensive applications. The global AI chip market is currently led by Nvidia Corp., while the likes of Amazon.com Inc. and Alphabet Inc.’s Google have also invested in their own bespoke server microchips.
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