On September 29, Rosenblatt reiterated its Buy rating and $700 price target on Advanced Micro Devices, Inc. (NASDAQ:AMD) after the company announced that it had entered into a definitive agreement to acquire World Labs, an AI model and research lab led by AI pioneer Dr. Fei-Fei Li.
Rosenblatt believes the acquisition could expand AMD’s AI software, modeling, and simulation capabilities at a time when the AI market is developing rapidly and increasingly requires system-level expertise beyond traditional semiconductor capabilities. The deal is valued at $8.2 billion in an all-stock transaction and is expected to close by the end of 2026.
The research firm noted that World Labs’ engineers could help accelerate AMD’s development of AI platforms at the system level while also opening opportunities in new markets such as robotics.
The firm sees the acquisition as bringing forward R&D spending that AMD would otherwise need to undertake to develop this technology in-house. Rosenblatt also approves AMD management’s decision to grow the company’s AI capabilities.
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As part of the transaction, Dr. Fei-Fei Li will join AMD as executive vice president and chief scientist.
Acquisition Adds Long-Term Potential, But Some Concerns Remain
The deal comes with some risks for investors. AMD said it will pay the $8.2 billion purchase price in stock. This means that the transaction will dilute existing shareholders. In addition, the acquisition does not immediately translate into chip revenue or earnings, meaning investors will need to wait for the new capabilities to make meaningful contributions.
The transaction also adds execution and integration risk at a time when AMD’s valuation already reflects substantial expectations for AI-driven growth. As of October 2, the stock has gained more than 180% year-to-date and the company is now valued at more than $1 trillion.
Investors may also want to look at AMD’s $1 Trillion Valuation Raises the Bar for its AI Ambitions.
What the Numbers Say
Hedge fund interest in the stock increased during the second quarter. According to Insider Monkey‘s database, 164 hedge funds held Advanced Micro Devices, Inc. at the end of the second quarter, up from 134 in the first quarter.
It is important to note that AMD does not appear cheap as it trades at a P/E ratio of 156.79. However, this valuation comes alongside substantial earnings and revenue growth. In Q2 2026, AMD’s revenue increased 50% year-over-year to reach $11.5 billion and diluted EPS jumped 156% to $1.38. Data Center revenue also more than doubled from a year earlier.
Management’s outlook points to continued momentum. AMD expects Q3 revenue of approximately $13 billion, which represents about 41% year-over-year growth. This level of growth provides support for AMD’s premium valuation. However, it also means that the stock is already priced for strong execution and continued expansion in AI.
For investors comparing AMD with the leading AI chipmaker, AMD vs. Nvidia: Which AI Stock Is the Better Buy? compares the two companies.
The World Labs acquisition could strengthen the long-term growth story as it strengthens the company’s position in emerging areas such as physical AI, robotics, and spatial computing. However, investors may need to see proof that these capabilities can translate into meaningful financial growth.
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