AMD has acquired World Labs, an artificial intelligence startup, in a deal that directly challenges Nvidia's grip on the AI computing market. The announcement was made Tuesday. Financial terms were not disclosed.

The acquisition gives AMD access to World Labs' technology and talent, which focus on AI model development and spatial intelligence. World Labs was founded by Fei-Fei Li, a Stanford professor known for her work on ImageNet, a dataset that helped launch the modern AI boom.

AMD has spent the past two years trying to close the gap with Nvidia in AI chips. Nvidia controls roughly 80 percent of the market for AI accelerators, the hardware that powers models like ChatGPT and Claude. AMD's MI300X chip has won some customers, including Microsoft and Meta, but the company still trails badly in market share.

Buying World Labs signals that AMD wants to compete not just on hardware but on software and models. Nvidia has built a deep moat with CUDA, its programming platform that locks developers into its ecosystem. AMD has struggled to match that lock-in.

"This is AMD saying they need to own more of the stack," said one industry analyst who declined to be named because the deal was just announced. "Hardware alone won't win this fight."

World Labs has focused on what it calls "spatial intelligence" — AI systems that understand and interact with 3D environments. That technology could matter for robotics, autonomous vehicles, and simulation. It is a different bet than the large language models that dominate headlines.

The deal is the latest in a wave of AI acquisitions by chipmakers. Nvidia has bought several AI startups in recent years. Intel and Qualcomm have also made moves. The race is not just about who builds the fastest chip but who controls the software and models that run on it.

AMD shares were roughly flat in after-hours trading following the news. Nvidia shares also showed little movement. Investors appear to be waiting for more details on the price and how quickly AMD can integrate World Labs' technology.

For AMD CEO Lisa Su, the acquisition is another step in her long effort to diversify the company beyond PCs and gaming consoles. Under Su, AMD has taken market share from Intel in server CPUs. Now she wants to do the same to Nvidia in AI.

That will not be easy. Nvidia has a multi-year head start, deep relationships with cloud providers, and a software ecosystem that competitors have failed to replicate. But AMD is betting that owning key AI technology — not just building chips — is the way to catch up.

The deal is expected to close in the coming months, subject to regulatory approval. AMD did not say when World Labs' technology would be integrated into its products.