Networking startup Ayar Labs Inc. has raised $500 million in late-stage funding at a $3.75 billion valuation.

The Series E round was led by Neuberger Berman. Ayar Labs stated in its late Monday funding announcement that Nvidia Corp., Advanced Micro Devices Inc. and MediaTek Inc. participated as well alongside several other backers. The company’s total outside funding now stands at $870 million.

The chips in a server cluster usually exchange data with one another by sending data over copper wires. Ayar Labs develops co-packaged optics, or CPO, hardware that transmits packets in the form of light. The company says that its technology provides higher bandwidth than copper-based interconnects and uses less power.

The first component of Ayar’s CPO interconnect is a light emitter called SuperNova. It’s a flat, rectangular chip not much larger than a dime that generates laser beams. Those laser beams carry data between the chips in a server cluster.

Data is encoded into SuperNova-generated light by TeraPHY, the second component of Ayar Labs’ interconnect. It’s a chip that contains millions of transistors and miniaturized optical devices. Those devices include so-called microring resonators. A microring resonator is a circular structure that changes the properties of laser beams by generating constructive interference, or situations where two light waves collide to form a new wave.

Light travels faster than electrical signals sent over copper wires. As a result, TeraPHY can provide more bandwidth than traditional copper interconnects. Ayar Labs says a single TeraPHY unit is capable of processing up to 8 terabits of traffic per second.

The company also promises to provide lower latency. Many interconnects use a technology called FEC, or forward error correction, to fix the errors that often find their way into data while it travels over the network. FEC adds about 100 milliseconds of latency to connections. TeraPHY doesn’t use the technology and consequently processes traffic faster. 

Last May, Ayar Labs debuted a version of the chip that supports an industry standard called UCIe. The feature enables engineers to interage TeraPHY directly into processors such as graphics processing units. That use case is presumably one of the reasons the startup’s latest raise included contributions from Nvidia.

Earlier Monday, the GPU maker announced a $4 billion investment in two other optical hardware suppliers. Lumentum Holdings Inc. and Coherent Corp. are publicly-traded network equipment makers that sell CPO interconnect components. They also make a range of other products including fiber-optic cables for data centers.

Ayar Labs will use the proceeds from its funding round to add CPO component production capacity. In addition, the company plans to enhance its product testing workflows and grow its international presence. 

Image: Ayar Labs