Lambda Labs, a start-up from Silicon Valley that rents servers with Nvidia's artificial intelligence chips, is in negotiations to raise another $800 million. The company aims to leverage the current boom in the field of artificial intelligence (AI) and the shortage of the most advanced graphics processors (GPUs).

The planned deal would catapult the company into the ranks of the best-funded start-ups in Silicon Valley in recent years. This comes at a time when the demand for the computing infrastructure behind the boom of generative AI is skyrocketing.

The new funding round would add to the $320 million that the San Jose-based company raised in February at a valuation of $1.5 billion. In April, Lambda also announced that it secured a $500 million loan backed by its Nvidia chips. These funds are intended to expand the cloud services.

The rapid succession of funding rounds at Lambda underscores the growing demand for Nvidia's GPUs. These are becoming highly sought after as both large technology companies and startups like OpenAI, Anthropic, and Elon Musk's xAI compete for so-called 'compute' capacities.

It is expected that the term sheets will be available by mid-July. JPMorgan is coordinating Lambda's fundraising activities, although a revised valuation has not yet been set, according to three people familiar with the process. The capital is to be used to acquire more Nvidia GPUs and related cloud networking software, as well as to hire additional personnel.

Lambda declined to comment.

Under the leadership of co-founder Stephen Balaban, Lambda has benefited from a close relationship with Nvidia. Nvidia has grown to become one of the most valuable companies in the world, reaching a market capitalization of $3 trillion. CEO Jensen Huang has supplied Nvidia's GPUs to companies like Lambda and its rival CoreWeave to diversify Nvidia's customer base and foster new competitors against the cloud giants Google, Amazon, and Microsoft. These big tech companies are not only customers of Nvidia but are also developing their own AI-specialized chips.

CoreWeave has now reached a valuation of 19 billion US dollars and completed two deals last month, raising 7.5 billion US dollars in debt and 1.1 billion US dollars in equity.

It is unclear whether Lambda will bring in new investors in the new funding round. In February, billionaire Thomas Tull's US Innovative Technology, B Capital, SK Telecom, and investment giant T Rowe Price were the main supporters of Lambda.

Lambda raised $44 million in March 2023 with support from Quora founder and OpenAI board member Adam D’Angelo, OpenAI president Greg Brockman, and Y Combinator CEO Garry Tan.

The California-based company originally focused on facial recognition before specializing in AI and then cloud computing after realizing its servers were more valuable when rented out to others.