AMD's Rory Read is overseeing the "hush-hush effort" to install the new chip into Sony's unannounced console, according to Forbes.
Sony and AMD are yet to comment on the rumors, which were leaked by former AMD employees. AMD, however, has previously identified gaming as a growth area in 2012.
AMD's Xenos GPU can currently be found in the Xbox 360, while the PlayStation 3 is powered by Nvidia technology.
Despite speculation that it will unveil its new console at this year's E3 event in Los Angeles, Sony has distanced itself from announcing the PS4 in 2012.
Instead, it will concentrate on the PS3 and recently-released handheld the PlayStation Vita.
> PlayStation Vita out now: London launch in pictures
Watch a trailer for the PlayStation Vita below: