The U.S. government has awarded $500 million to SandboxAQ, an Nvidia-backed startup, to develop new chemicals and materials aimed at strengthening domestic semiconductor manufacturing, including alternatives to PFAS chemicals and imported rare earth elements.
The award, announced Wednesday, falls under President Donald Trump’s broader push to direct research funding through the CHIPS Act, an initiative that has previously backed a $150 million investment in chip manufacturing tools and a $2 billion investment in quantum computing.
SandboxAQ, valued at $5.75 billion as of April 2025 and having raised more than $1 billion to date, has built its reputation on a distinctive approach to artificial intelligence. Rather than training its systems on text or code, the company develops AI models grounded in real-world experimental and physics-based data, an approach it has already applied to fields like biotechnology and quantum navigation sensors designed to replace GPS systems. This latest contract marks its expansion into chemicals and materials research for chip manufacturing.
Under the agreement, SandboxAQ will focus on four key areas where the U.S. semiconductor industry faces either vulnerable foreign supply chains or material shortages: finding replacements or remediation methods for PFAS, the so-called “forever chemicals” used in chipmaking; developing catalysts to accelerate chemical reactions in the manufacturing process; and creating new permanent magnets and battery technologies that don’t rely on rare earth elements sourced from China or other foreign suppliers.
As part of the deal, the Commerce Department will take a minority stake in SandboxAQ, though without voting rights or a board seat, according to the company and a senior department official. CEO Jack Hidary declined to specify the size of the government’s stake.
PFAS chemicals represent one of the contract’s central challenges. Despite their effectiveness, these compounds persist in the environment due to the strength of their chemical bonds, an issue that prompted the Trump administration last year to delay certain Biden-era monitoring deadlines for PFAS in drinking water. SandboxAQ, which has already shown early research progress in this area, plans to pursue both substitute chemicals and methods to break down PFAS into less harmful byproducts where replacement isn’t feasible.
Hidary explained that semiconductor manufacturing involves numerous steps where companies could either choose alternative chemicals to avoid generating PFAS in the first place, or, where its production is unavoidable, break it down on-site before it can enter the environment.
Should SandboxAQ succeed in developing viable materials across its four focus areas, the company plans to license those formulas to industrial partners for large-scale production, with the Commerce Department receiving royalty payments in return, according to the company and a senior department official.
The battery and magnet components of the contract tie into a broader goal within the Trump administration: reducing U.S. dependence on foreign sources of critical minerals. Battery systems play a key role in chip manufacturing equipment, both smoothing out power drawn from the grid and serving as backups to prevent costly shutdowns during outages, while magnets are used universally across such machinery. A senior Commerce Department official noted that if major semiconductor equipment manufacturers are unable to secure enough magnets, it becomes a significant supply chain problem.