"It's a brilliant strategic move," said Eric Ross, an analyst at ThinkEquity Partners.
"AMD essentially have cornered the high end graphics platform for themselves. Intel is getting squeezed out there."
In electronic trading before the open of the US stock market, AMD shares dropped 8% and ATI shares jumped 16%.
AMD said the deal would help it expand its products in the commercial, mobile computing and gaming sectors.
It also would help it expand its media and emerging market offerings.
