AMD is acquiring server manufacturer ZT Systems for $4.9 billion to strengthen its AI chip offerings and challenge Nvidia.
AMD announced on Monday its plans to acquire server maker ZT Systems for $4.9 billion, aiming to broaden its artificial intelligence chip and hardware portfolio and compete with Nvidia.
AMD intends to cover 75% of the $4.9 billion ZT Systems acquisition with cash, with the remaining amount paid in stock. As of the second quarter, the company had $5.34 billion in cash and short-term investments.
The growing computing demands of AI have led tech companies to connect thousands of chips in clusters to achieve the required data processing power. This has made the design of entire server systems more critical, prompting AMD’s decision to acquire ZT Systems.
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“AI systems are our top strategic priority,” AMD CEO Lisa Su stated in an interview with Reuters.
Su mentioned that integrating ZT Systems engineers will enable AMD to accelerate the testing and deployment of its latest AI GPUs, meeting the scale required by cloud computing giants like Microsoft.
AMD’s shares rose more than 2%, while Nvidia rose 1.4%.
“This definitely strengthens their lock-in with data center customers, making the acquisition a net positive for their long-term revenue strategy,” said Ben Bajarin, CEO of Creative Strategies.
AMD intends to spin off its server manufacturing business and sell it after the acquisition is finalized, as the company does not plan to compete with firms like Super Micro Computer, according to Su.
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AMD has not yet engaged in discussions with potential buyers.
ZT Systems CEO Frank Zhang will join AMD and report directly to Forrest Norrod, AMD’s data center chief.
ZT Systems, a privately-held company with approximately 2,500 employees, will see around 1,000 of those retained by AMD, resulting in about $150 million in annualized operating expenses.
ZT Systems currently generates around $10 billion in annual revenue, with the majority coming from its manufacturing unit.
Executives anticipate the deal will close in the first half of 2025, with an additional 12 to 18 months needed to sell the manufacturing business.
AMD expects the acquisition to positively impact its adjusted financial performance by the end of 2025.
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CFO Jean Hu noted that the minor dilution from the deal in the first year after closing in 2025 would be balanced out by increased sales of graphics processing units, leading to a break-even effect. By 2026, the acquisition is projected to boost revenue growth, Hu added.
Kinngai Chan, a managing director at Summit Insights, stated that the sale of ZT Systems’ manufacturing business would not affect AMD in the long term. He also mentioned that the deal could help expand AMD’s business with cloud customers. “Having more engineers helps,” Chan said.
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At the company’s developer conference in March, Nvidia CEO Jensen Huang noted that the company, originally a chip designer, now constructs and sells entire data centers as well as the individual components needed to build them. Analysts project that Nvidia will generate $105.9 billion from its data center segment this year, which encompasses chips and other AI hardware.
Last month, Su stated that the company anticipates generating approximately $4.5 billion in AI chip revenue this year. Its customers include Microsoft and Meta Platforms.