AI chip startup Etched raises $500 million in funding to develop competitive GPU alternatives to NVIDIA's products.

Etched raised approximately $500 million in a new funding round led by investment firm Stripes, valuing the San Jose, California-based company at $5 billion. The round included participation from billionaire entrepreneur Peter Thiel, as well as investments from Positive Sum and Ribbit Capital. Etched has now raised a total of almost $1 billion.

The startup is developing an AI chip called Sohu, aimed at capitalizing on surging demand for artificial intelligence computing. To produce the chip, Etched teamed up with Taiwan Semiconductor Manufacturing Co.'s Emerging Businesses Group and has recruited personnel from firms including Cypress Semiconductor Corp. and Broadcom Inc.

Nvidia remains the leading maker of AI accelerators, the chips used to develop and run artificial intelligence models. Nvidia's dominance has prompted numerous startups to challenge its market position, though they have faced significant obstacles. Nvidia announced this month that its demand continues to rise, with the company projecting more than half a trillion dollars in sales from data center operators by the end of 2026.

Among Etched's previous backers alongside Thiel and Positive Sum was Primary Venture Partners, along with angel investors including former Github Chief Executive Officer Thomas Dohmke and ex-Coinbase Inc. executive Balaji Srinivasan.