High-frequency traders race to build AI computing power

Investing.com -- High-frequency trading firms including Jane Street and Hudson River Trading are investing billions of dollars to secure computing power for artificial intelligence, marking a shift from their traditional focus on speed alone.

Market-making companies are building their own data centers, partnering with cloud providers, and backing AI chip startups as they compete for processing capacity needed to run machine learning models. One executive at a major firm estimated that market makers are investing between 10 and 20 times more on computing power than before ChatGPT launched in November 2022.

Hudson River Trading uses data centers including Lefdal Mine Data Centers in western Norway, located inside a former olivine mine. Iain Dunning, head of AI at Hudson River, said the firm needed just one or two sites 10 years ago but now uses multiple facilities.

XTX Markets has built a new data center in Kajaani, Finland, at a cost of €1 billion ($1.1 billion), set to be online by the end of the year. A second facility next door should start operations in 2027.

Jane Street operates a data center in Texas housing more than 4,000 Nvidia GPUs across 56 server racks and is in discussions about building a second facility. The firm is spending $1 billion annually on AI, according to Dunning, with the figure trending upward.

Citadel Securities works with hyperscalers including Amazon Web Services and Microsoft Azure, with a focus on its partnership with Alphabet's Google. The firm uses Google's tensor processing unit chip, which it said ran workloads up to four times faster than GPUs with 30% lower costs.

"Working with the hyperscalers gives us the ability to scale research and compute rapidly, access leading AI infrastructure and TPUs, and engage with world-class engineering talent," Jim Esposito, president of Citadel Securities, said at a recent Barclays conference.

Hudson River signed a multiyear deal with CoreWeave in August and a May agreement to rent Nvidia chips from Lambda. Jane Street bought an equity stake in CoreWeave for $1 billion earlier this year while pledging to spend $6 billion with the company for compute. Jane Street also signed a $13 billion agreement with data center company Crusoe.

Optiver has billions in capital expenditure planned in the years ahead, according to Jan Boomaars, chief executive officer at the Amsterdam-based firm. The company runs data centers in the U.S. and is in talks to replicate that model in Europe and Asia.

"Our capex is fundamentally different versus a few years ago," Boomaars said. "This is a 10-year-plus investment cycle."

Market makers are also investing in AI chip startups. In August, Jane Street led an investment round that valued Etched at $21 billion, more than four times its value nine months earlier. Jump Trading and Hudson River are also testing Etched chips and have invested in the company.

Positron, another AI chip firm, recently raised funds at a valuation almost five times greater than seven months ago. Jump Trading is backing Positron and testing its product.

Susquehanna International Group is in talks to secure data center space in Texas to add to facilities it uses in Illinois and Pennsylvania. The firm is also investing in an Oregon-based startup developing floating AI data centers powered by waves.

Tower Research Capital has built and operates its own data center at an undisclosed location. John Cogman, Tower's chief investment officer, said the scale of resources demanded by quantitative researchers had increased within the last 12 months.

Hudson River has invested in Gray Swan, an AI security company, to protect its networks. Jump Trading put money in Flapping Airplanes and Sooth Labs, AI research labs working on models that address data scarcity and long-term forecasting.

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