With NVIDIA (NVDA 1.75%) working on its industry-redefining acquisition of chip-design licensor ARM Holdings for $40 billion, peer AMD (AMD -0.17%) is reportedly trying to make waves of its own. Long the underdog, AMD is flying high this year on gains in semiconductor market share, and is now said to be in advanced talks to purchase smaller peer Xilinx (XLNX) for over $30 billion.  

Someone in a lab suit holding a semiconductor.

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Doubling down on disruption

AMD's success this year comes primarily from its processor business for everything from PCs and laptops to data centers. Its next-gen hardware has helped it make inroads into Intel's (INTC -0.03%) massive empire, since the world's largest chip company (as measured by revenue) has fallen behind technologically as of late.

So far in 2020, AMD shares are up over 80%. Revenue has surged 33% in the first half of the year versus the same period in 2019; net income is up 525% year over year through the first half of the year.  

After the jump in stock price, AMD now has a market cap of nearly $100 billion. Long the second fiddle to Intel on processors -- and to NVIDIA on graphics chips -- AMD is using its newfound strength to negotiate the takeover of Xilinx, the maker of field programmable gate array (FPGA) chips. Xilinx pioneered the FPGA back in the 1980s and is the leading designer of the flexible chips, with over $3 billion in annual sales.  

FPGAs can be programmed in the field and thus are cheaper than a custom-built and application-specific chip. They are used in a wide range of applications like data centers, industrial equipment, and cars. Intel added FPGAs to its portfolio when it scooped up Altera back in 2015 for $16.7 billion. Adding Xilinx would thus help AMD on its quest to continue chipping away at Intel's $79 billion in annual sales, which is still far and away the highest in the semiconductor industry.

Xilinx is also highly profitable, with a free-cash-flow profit margin of 34% over the last year to AMD's meager 8% margin, on revenue of $7.65 billion over the same time frame. With Xilinx in the mix, AMD could also significantly boost its bottom line and further its ability to invest in new research and development in the coming years.