Advanced Micro Devices (AMD Inc) has entered advanced talks to buy chipmaker Xilinx Inc, sources familiar with the matter told the Wall Street Journal on Friday.
The two firms could potentially ink the deal next week and be valued at over $30bn, or the largest in the semiconductor industry, the report said.
Rival chipmaker Xilinx is currently worth $26bn and has seen shares rise 9 percent this year.
But Xilinx shares have nosedived over tensions in the ongoing US trade war on China, where Washington slapped trade restrictions on Huawei Technologies, blocking the latter's access to US semiconductor and software firms.
Xilinx sales to the Chinese tech giant account for up to 8 percent of the firm's revenues, according to analysts, the report said.
The company's field-programmable gate arrays (FPGAs) can be reprogrammed post-productions for emerging technologies such as 5G networks, military and radar systems, among others.
AMD-Xilinx Deal and the Wider US Trade War
The news come amid uncertainty in a $40bn deal between US tech firm NVIDIA and British chip designer ARM, where Chinese officials have voiced concerns that such a buyout could lead to further export controls on semiconductors to Beijing.
The deal - one of the largest in the industry - would require approval from the United Kingdom, United States and China, with the latter potentially blocking the sale due to Washington's hardline trade war, according to Lenovo's former chief engineer.
The US Department of Commerce also mulled placing Shanghai-based Semiconductor Manufacturing International Corp, China's largest chipmaker, on Washington's Entity List along with Huawei, ZTE and more than 70 Chinese tech firms.
The US has routinely accused mainland firms of using their technologies to spy for Beijing, the Communist Party of China and military, with Chinese officials and Chinese tech firm execs strongly denying and criticising the claims.