Advanced Micro Devices Inc. (NASDAQ:AMD) announced on September 28 that it will buy World Labs in an all-stock deal worth about $8.2 billion. The San Francisco startup, led by AI pioneer Fei-Fei Li, builds models that can create and simulate 3D worlds from text, images, and video. Its technology also helps train robots. The deal is expected to close by the end of 2026.
Once that happens, Li will become AMD’s executive vice president and chief scientist, reporting directly to CEO Lisa Su. This is AMD’s second-largest acquisition ever, behind only Xilinx. The deal also adds another dimension to AMD’s AI investment case. While AMD ranks No. 4 on our list of the best AI stocks to buy according to billionaire Stanley Druckenmiller, three stocks ranked ahead of AMD.
Why AMD Is Paying Up
On paper, the price looks steep. It’s reportedly about 64% above the $5 billion valuation World Labs had just seven months ago. But AMD is paying entirely in stock. With AMD worth roughly $1 trillion, the new shares add less than 1% to its share count. The company’s stock-funded deal may limit the impact on its share count, but investors looking for other AI opportunities may want to see where the market’s growth bets are heading. Explore the 10 best ARK stocks to buy right now, with AMD ranked No. 2.
So to me, that makes this a fairly cheap way to buy something AMD badly needs. That’s an early look at how AI models are changing. Su told Bloomberg that the better AMD understands AI from end to end, the better systems it can build. Citi’s Atif Malik added that the deal gives AMD more visibility into where models are heading, helping it compete with Nvidia. AMD also said it doesn’t intend to compete with its own AI customers, which is a fair concern when a chipmaker buys a model lab.
AMD’s Pricey Stock Makes This Deal Cheaper
AMD trades at a premium on almost every measure. The forward GAAP P/E of 106.29x sits about 9% above its 5-year average of 97.30x. The forward Price-to-sales ratio is much steeper. At 19.50x, it sits more than double its 5-year average of 8.61x. The EPS outlook helps justify these multiples. Analysts expect earnings to grow 82% this year and 106% in 2027, before settling at just over 40% through the end of the decade. For a company worth roughly $1 trillion, that trajectory is exceptional. AMD also holds $13.11 billion in cash, cash equivalents, and short-term investments against $3.23 billion in debt at the end of Q2 2026. To me, the high valuation is part of what makes the World Labs deal smart. With its shares this richly priced, AMD can fund the acquisition without using cash, although existing shareholders will face dilution. But after a 180% plus rally, investors have to ask whether AMD’s strong growth prospects are already reflected in the stock price.
Hedge funds were piling into AMD well before this deal. The number of funds holding the stock rose from 134 in Q1 to 164 in Q2. Their stakes also nearly tripled from $8.7 billion to $23.6 billion, helped by the stock’s rally.
I think it’s a smart long-term move, even if it won’t show up in revenue anytime soon. Over the next few years, it’ll be interesting to see how Li’s research shapes AMD’s chips.
While we acknowledge the risk and potential of AMD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMD and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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