Minus expenses reimbursed to the development company, AMD will receive $608 million, which the chip maker will use for research and development and to support its manufacturing operations.
Mubadala bought 49 million newly-issued shares of AMD, although the investment does not put the development company on AMD's board of directors, AMD said.
Mubadala is owned by the Abu Dhabi government. Since the investment is not a controlling stake, the deal is not subject to review by the Committee on Foreign Investment in the U.S., according to AMD.
AMD, the perennial second-place chip vendor in the shadow of Intel, started making notable gains in the market in 2005 with the introduction of its first dual-core, 64-bit Opteron processors, which doubled the performance of single-core Opterons.
But Intel has battled back with its own lines of 64-bit and dual-core chips, putting pressure on AMD. In October, AMD reported a net loss of $396 million for the third quarter, compared to net income of $136 million a year earlier. It was the company's fourth straight quarterly loss.
After the market closed Thursday, AMD filed papers with the U.S. Securities and Exchange Commission to sell up to $700 million of its stock periodically.
"AMD's competitive position in the processor market looks little improved as the company has only managed to launch lower clock speeds which carry list prices in the lower price bands, on its new 65nm Barcelona server processors," said Citi Investment Research in a research note. "In contrast, Intel launched a full slate of clock speeds and price points with its new 45nm Penryn server processor."
Intel launched the Penryn line earlier this week.