Advanced Micro Devices (AMD) stock gained on Tuesday after the chipmaker announced an $8.2 billion all-stock deal to acquire World Labs, an artificial intelligence startup focused on spatial intelligence and 3D “world models.”
Under the transaction, World Labs founder and AI researcher Dr. Fei-Fei Li will join AMD as executive vice president and chief scientist, reporting directly to CEO Lisa Su.
Li previously taught at Stanford and worked at Google, where she led AI research.
The acquisition gives AMD access to World Labs’ research into AI models designed to simulate three-dimensional environments.
AMD said the lab will remain separate from its chipmaking business until the transaction closes later this year.
AMD targets next generation of AI workloads
World Labs is developing so-called world models that can create and simulate 3D environments.
Earlier this year, Li and Su demonstrated the company’s Marble model, which can generate a 3D scene using a small number of images.
The technology could have applications in robotics and other physically grounded AI systems.
AMD said World Labs’ research could also help the chipmaker anticipate the requirements of future AI models and plan its processors around those needs years in advance.
The $8.2 billion acquisition is AMD’s second-largest deal on record, following its approximately $50 billion purchase of Xilinx in 2022.
Citi analyst Atif Malik said the addition of World Labs and Li could give AMD “deeper visibility” into the evolution of AI models.
Malik identified acquiring AI engineers, strengthening AMD’s position in physical AI and developing better end-to-end systems as potential motivations for the transaction.
Malik has a Buy rating and a $575 price target on AMD.
Analysts see opportunities in physical AI
RBC analyst Srini Pajjuri said the acquisition could help AMD build full-stack solutions for robotics, simulation and physical AI markets, which he described as being in their early stages.
Pajjuri also highlighted the addition of what he called a “world-class team of AI researchers and model experts.”
However, he said Nvidia maintains a “significant” lead in spatial AI and physical simulation through its Omniverse platform.
Pajjuri has a Sector Perform rating and a $540 price target on AMD.
Wells Fargo analyst Joe Quatrochi said the deal could provide AMD with greater visibility into the future development of AI systems.
He said World Labs would further expand AMD’s open AI ecosystem, while pointing to Nvidia’s Omniverse, Cosmos and Isaac platforms as comparable areas.
Quatrochi has an Overweight rating and a $700 price target on AMD.
World Labs expands AMD’s AI software capabilities
Rosenblatt also reiterated a Buy rating and $700 price target on AMD following the acquisition.
The research firm said the deal would expand AMD’s AI software, modelling and simulation capabilities.
Rosenblatt argued that the rapid development of the AI market requires system-level knowledge beyond traditional semiconductor expertise.
According to Rosenblatt, World Labs’ engineers could accelerate AMD’s development of system-level AI platforms while helping the company enter areas such as robotics.
The firm also viewed the transaction as bringing forward the R&D spending needed to develop these capabilities internally and said it supported management’s decision to expand AMD’s AI capabilities.
The acquisition adds another layer to AMD’s efforts to build its AI ecosystem as the company competes with Nvidia across increasingly broad AI computing markets.
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