By Stephen Nellis
SAN FRANCISCO, June 17 (Reuters) - The U.S. government awarded $500 million on Wednesday to startup SandboxAQ to develop new chemicals and materials for domestic semiconductor manufacturing, including alternatives to PFAS and rare earth imports.
The award is part of President Donald Trump's move to allocate research funds under the CHIPS Act, an effort that previously funded a $150 million investment in new chip manufacturing tools and a $2 billion investment in quantum computing.
SandboxAQ, backed by Nvidia, was valued at $5.75 billion in April 2025 and has raised more than $1 billion to date.
It is developing a new kind of AI, designed to solve problems in the physical world. Instead of being trained on written human language or computer code, SandboxAQ's AI systems use the results of real-world experiments and physics-based data to produce models that help scientists solve problems that existing chatbots struggle with.
So far, SandboxAQ has applied those models to fields such as biotechnology and quantum navigation sensors to replace global positioning systems, but now it is moving into chemicals and materials for chip manufacturing.
With the $500 million award from the U.S. Department of Commerce, SandboxAQ will aim to come up with new materials where U.S. chip manufacturing either depends on vulnerable foreign supply chains, or where the industry faces shortages and bottlenecks.
The contract tasks SandboxAQ with finding commercially viable materials in four key areas: replacements and fixes for PFAS, or 'forever chemicals', used in chipmaking; catalysts to speed up chemical reactions in chipmaking; and new permanent magnets and batteries for chipmaking equipment that do not use rare earth elements from China or other foreign sources.
As part of the award, the Commerce Department will take a minority stake in SandboxAQ, the company and a senior department official said. SandboxAQ CEO Jack Hidary declined to disclose the size of the government stake but told Reuters it does not come with voting rights or a board seat.
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One focus area is PFAS chemicals, which are critical for making chips but which can persist in the environment because of the strength of their chemical bonds. The Trump administration last year pushed back some Biden-era deadlines for monitoring the chemicals in drinking water.
SandboxAQ will work on developing substitutes for PFAS and ways to break it down into less harmful chemicals when it cannot be replaced, a field where the startup has already shown research progress.
"When you look at the many steps of semiconductor manufacturing, there are opportunities across that workflow to both choose different chemicals that prevent the need for PFAS, and then when there are some steps that do generate PFAS, to break it down on site, before it enters the outside world," Hidary told Reuters.
If successful at developing materials in the four key focus areas, SandboxAQ will license the formulas out to industrial partners for mass production, and the Commerce Department will receive a royalty payment, the company and a senior department official told Reuters.
For batteries and permanent magnets, the award works toward a larger goal of the Trump administration - to lessen U.S. reliance on critical minerals from foreign supply chains. Chipmaking machines use battery systems to smooth out power from the grid and as backups to avoid costly sudden shutdowns in the event of power outages, and the machines all include magnets.
"Everything uses at least one or more permanent magnets," a senior Commerce Department official said of chipmaking machines. "If the big semiconductor equipment companies can't source enough magnets to go in the equipment, then that's an issue."
(Reporting by Stephen Nellis in San Francisco; Editing by Muralikumar Anantharaman)
