SAN FRANCISCO, June 25 (Reuters) -

A rtificial-intelligence startup Etched said on Tuesday it has

raised $120 million in a series-A funding round that the company

plans to use to further develop its specialized chip.

The San Francisco-based company aims to make a specialized

processor tuned to run a specific kind of AI model that is

widely used by OpenAI's ChatGPT and Google Gemini.

Nvidia ( NVDA ) dominates the market for server AI chips,

capturing roughly 80% of sales, according to estimates. Nvidia's ( NVDA )

general-purpose AI chips are capable of handling a range of

computing applications, but can use more energy than processors

designed to perform specific functions. Nvidia ( NVDA ) is the largest

U.S. company by market value.

Etched said backers in the funding round include former

PayPal CEO Peter Thiel and Replit CEO Amjad Masad.

Engineers at Etched are designing the chip to power the

portion of AI computing that generates content and responses,

called inference. The chip, which is the first designed by the

company, would be optimized to run a specific form of AI model

known as a transformer.

"This company is a little bit of a bet," CEO Gavin Uberti

said in an interview. "If transformers go away, our company will

die. But if they stick around, we're going to be one of the

biggest companies of all time."

Etched has partnered with Taiwan Semiconductor Manufacturing

Co. ( TSM ) to fabricate the chips. Uberti said the company

needs the series-A funding to defray the costs of sending its

designs to TSMC and manufacturing the chips, a process known as

"taping out" a chip.

The company did not disclose its valuation. At the time of

its $5.4-million seed-funding round, March 2023, investors

valued the business at $34 million.

The 35-person company was founded by Uberti and Chris Zhu.