Our GPU Reseller Prediction Comes True; 2,000-Year-Old Mystery Solved with AI

In October we predicted that resellers of graphics processing units, an emerging class of startups that provide Nvidia’s in-demand server chips to artificial intelligence developers, would soon be in trouble. Sure enough, three months later, one of those startups is giving up.

On Thursday, the startup Banana, which raised $3.4 million in funding from investors such as Basecamp Fund and CapitalX, said it would shut down its main GPU reselling service and pivot the company. It didn’t say what it would do next.

When I spoke with Banana founder Erik Dunteman in October, he admitted that reselling GPUs is a tough business. Think about how it works: GPU resellers typically have to rent servers from larger cloud providers like Amazon Web Services or CoreWeave. Then they turn around and lease those GPUs to AI startups for a small mark-up. However, GPU resellers also have to keep a large chunk of computing capacity idle at all times in case their customers see sudden spikes of usage. And it’s not even a given that these startups can acquire GPUs in the first place, given the ongoing chip shortage.

All of this adds up to gross margins that can reach 50% at best, versus the 70%-plus margins of typical software companies.