"Our collaboration with Intel expands the installed base for AMD Radeon GPUs and brings to market a differentiated solution for high-performance graphics," said Scott Herkelman, vice president and general manager, AMD Radeon Technologies Group, in the press release.
"This new semi-custom GPU puts the performance and capabilities of Radeon graphics into the hands of an expanded set of enthusiasts who want the best visual experience possible."
Intel revealed the chip will be for thin and lightweight laptops that are capable of playing complex video games.
Shares of AMD surged 5 percent Monday morning, while Nvidia shares traded roughly flat. Intel's stock rose 0.8 percent.
AMD shares are down since it reported third-quarter financial results last month. The company gave gross profit margin guidance of 35 percent for the fourth quarter, below some estimates.
Its shares are now down 2 percent year to date through Friday versus the S&P 500's 16 percent return.
Intel did not immediately respond to a request for comment.
"This is a previous undisclosed win and as with other customer announcements, AMD will not disclose the dollar amount or specifics of the win," an AMD spokesperson wrote in an email. "Please note this is not a licensing deal and there is no transfer or license of IP" to Intel.
The Wall Street Journal first reported the deal Monday morning.