Modal Labs, a company that builds infrastructure for AI inference, is currently negotiating a new funding round that would value the business at roughly $2.5 billion, as reported by four individuals familiar with the discussions. If finalized under these conditions, the investment would more than double the firm's $1.1 billion valuation from less than five months ago.

The startup's annualized revenue run rate is said to be around $50 million. These talks are still in preliminary stages, and the final terms are subject to change. Both Modal Labs and General Catalyst declined to comment on the matter.

The company concentrates on optimizing inference, which is the computational process of running trained AI models to produce responses from user inputs. Enhancing inference efficiency helps lower computing expenses and decreases the delay between a user's query and the AI's reply.

Modal Labs is among a select group of inference-centric firms currently drawing significant investor interest. Just last week, its competitor Baseten revealed a $300 million fundraise at a $5 billion valuation, more than doubling the $2.1 billion valuation it had achieved only months earlier in September.

In a similar trend, Fireworks AI, another inference cloud provider, secured $250 million at a $4 billion valuation in October. This past January, the team behind the open-source inference tool vLLM launched a venture-backed startup called Inferact, raising $150 million in seed funding led by Andreessen Horowitz at an $800 million valuation.

Modal Labs was established in 2021 by CEO Erik Bernhardsson, who previously spent over 15 years constructing and managing data teams at organizations like Spotify and Better.com, where he served as Chief Technology Officer. Earlier investors in the startup include Lux Capital and Redpoint Ventures.