Microsoft and Advanced Micro Devices are working together on a graphics processing unit aimed at unseating Nvidia’s current place on the GPU throne.

The AI-capable chips are still in the early stages, and the deal is, for Microsoft, “part of a multipronged strategy to secure more of the highly coveted components”, according an insider who spilled to Bloomberg.

Microsoft is apparently provide the financial backing for AMD to develop a Microsoft-branded processor for AI, code-named Athena.

AMD signalled this partnership during this week’s earnings call.

“We are very excited about our opportunity in AI — this is our number one strategic priority,” Chief Executive Officer Lisa Su said during the call.

“We are in the very early stages of the AI computing era, and the rate of adoption and growth is faster than any other technology in recent history.”

The market is reacting: AMD shares jumped 6.5 per cent after the news, while Nvidia dropped 1.9 per cent.

It makes sense for Microsoft to be in a rush to develop more powerful AI-processing chips, given its A$15 billion investment into OpenAI and its ChatGPT software, which it has quickly incorporated into most of its product suites and digital offering.