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Why Shares of Advanced Micro Devices Jumped Today

Image source: AMD.

What happened

Shares of Advanced Micro Devices (NASDAQ: AMD) surged on Tuesday after a rumor emerged that AMD and Intel (NASDAQ: INTC) had signed a deal involving AMD's Radeon graphics technology. AMD stock was up about 9.9% at 3 p.m. EST, while Intel stock was up about 1%.

So what

The rumors of a deal between AMD and Intel first emerged in a forum post from Kyle Bennett, chief editor at HardOCP. According to Bennett, Intel is licensing AMD's graphics technology with plans to integrate it into future processors.

Intel and NVIDIA (NASDAQ: NVDA) currently have a cross-licensing agreement that gives Intel access to some of NVIDIA's patents, but it expires in early 2017. There has been no news regarding a renewal of this agreement, and it's possible that Intel has instead signed a similar deal with AMD. It's unclear if the agreement, if it turns out to be more than a rumor, will involve cash payments.

Speculation that Intel will use AMD's GPU's in its processors is probably unfounded. The most likely scenario is that a deal between AMD and Intel is simply a replacement for the NVIDIA deal.

Now what

The jump in AMD's stock price is based on sparse rumors; nothing has been confirmed by anyone at this point. A deal may involve payments to AMD, which would shore up the company's balance sheet as it prepares to launch its Zen processors next year. But the idea that Intel is going to use AMD's GPUs in its processors seems far-fetched to me.

In any event, this is probably good news for AMD and, depending on the nature of the deal, bad news for NVIDIA. But we'll need to wait for more information to know for sure.

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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.