SAN FRANCISCO (Reuters) - Artificial-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 dominates the market for server AI chips, capturing roughly 80% of sales, according to estimates. Nvidia's 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 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.