British artificial intelligence (AI) chip firm Graphcore - once considered a potential rival to market leader Nvidia - has been bought by a Japanese conglomerate.

Softbank has not disclosed how much it paid - but it is thought to be considerably less than the £2bn the UK company was valued at after a financing round in 2020.

Graphcore head Nigel Toon told the BBC it was "a tremendous endorsement of our team".

However, the deal is likely to raise questions about the UK's ability to develop firms which can take on the biggest players in the booming AI chip market.

It is not the first time Softbank has acquired a promising UK start-up - in 2016 it controversially acquired another British chip designer, Arm.

Ben Barringer, technology analyst at Quilter Cheviot, said it was "another bitter blow" to UK financial markets to see Graphcore follow suit.

"It comes at a time when London is looking for a blockbuster tech listing to reinvigorate its reputation as a global financial centre," he said.

The Science Secretary Peter Kyle called the deal a "welcome end to the uncertainty that has faced Graphcore and its employees".

But he also admitted it was a "reminder of the important work that needs to be done" to make the UK "the best place to start and grow a business.”

Mr Toon said he believed the deal showed UK firms could compete with big tech, claiming Graphcore went "toe to toe with the largest companies in this space with a much smaller team with much less capital".

"It's really positive for the UK, bringing new investment here to help drive the growth agenda which as we all heard recently is so important."