Dell said Thursday it would begin using AMD's chips in a new line of servers and desktop PCs as early as next month.
The announcement came four months after Dell ended a long-standing exclusive relationship with Intel and agreed to start using AMD processors in some servers.
Shares of AMD closed at $24.20, up $1.63 or 7.22 percent, in Thursday trading on the New York Stock Exchange. They fell 2.9 percent, or 70 cents, to $23.50 in after-hours trading.
Henri Richard, AMD's chief sales and marketing officer, said the latest move represented another escalation in the company's fierce battle with Intel for market share to supply the chips that act as the brains of computers.
Santa Clara-based Intel, the world's largest chip maker, has lost share in recent quarters to AMD, whose products have been viewed as faster and cheaper to run. Last month, Intel revamped its server and PC chip lines in an effort to be more competitive.
Intel spokesman Bill Kircos said the company was disappointed by Dell's decision but added the company is "ahead of the curve" with its latest line of chips.
Last quarter, AMD had about 20 percent of the server market and 26 percent of the desktop market, said Nathan Brookwood, an analyst with the Insight 64 research firm.
Brookwood called the expanded Dell-AMD partnership a "very positive development" for AMD that further validates the company's arrival as a "credible alternative" to Intel in most markets.
"A few years ago, when AMD was just selling processors that ended up in low-end consumer PCs, it would have been very hard to imagine that they would have the kind of expanded presence that this particular announcement highlights," he said.
Brookwood said Dell likely felt pressured by surging demand from AMD loyalists, though he cautioned the deal was not necessarily a loss for Intel. Its new line of Core 2 Duo chips are serious contenders and could help Intel retake ground lost to AMD's Athlon and Opteron chips, he said.
"This is a recognition that there are buyer preferences out there that go beyond who's the fastest or who's the cheapest or who's the coolest," he said. "There is some strong customer loyalty to AMD."
The latest news was expected, and some investors may have been disappointed that Dell did not announce plans to include AMD chips in its notebook computers, said Doug Freedman, an analyst with American Technology Research.