It's a tough task for any chip maker to keep up with Nvidia. But Advanced Micro Devices is certainly trying, with the $8.6 billion purchase of artificial-intelligence start-up World Labs.
AMD's latest acquisition looks like a smart bet on the future of AI chips, but it comes at the cost of further share dilution.
AMD is ponying up $8.6 billion to acquire World Labs in an all-stock deal announced late Monday. It sounds hefty for a start-up only founded in 2024, but that's not untypical of the AI sector these days. Shareholders seemed unfazed Tuesday, with AMD stock rising 1.7% in morning trading. That was outperforming the Nasdaq Composite, which was broadly flat.
Happily, AMD's deal comes with the bonus of a big-name hire in World Labs' founder Fei-Fei Li-known as the "Godmother of AI" for her pioneering work on computer vision. As AMD's new chief scientist, Li is well placed to help the company prepare for the expected growth of AI that understands the physical world-so-called "world models"-and what hardware they will need. Think robot servants and autonomous cars rather than chatbots.
The only problem is that AMD is essentially paying to catch up with Nvidia, not get ahead. The chip leader already has a foothold in world models, releasing its own suite named Cosmos. And of course, those models are optimized to work best on Nvidia hardware.
Nvidia was also an early backer of ex-Meta Platforms scientist Yann LeCun's Advanced Machine Intelligence (AMI), which is also working in the world-model field. If AMD starts making big strides with Li's help, don't be surprised to see Nvidia look to further tighten its links with AMI.
It's also worth thinking about the World Labs price tag. An all-stock deal makes sense, considering AMD trades at a forward price-to-earnings ratio of 44 times and has other uses for its cash. AMD will issue new shares to acquire World Labs, but the resulting stock dilution should be less than 1% based on current prices. However, AMD has also issued warrants entitling Meta and OpenAI to up to 160 million shares each, depending on future hardware purchases. At some point dilution could become an issue.
Meanwhile, Nvidia has just announced the largest-ever stock buyback, and earlier this month agreed to acquire open-source AI platform Hugging Face for $12.9 billion in a mostly cash deal. At the moment, AMD can still only dream of having such freedom to maneuver.
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