It’s not every Monday where I wake up, and as I’m babysitting my pour-over coffee, I go: "Oh, wow, that’s a doozy of a deal."
But there I was yesterday morning as the news dropped that AMD is buying server builder ZT Systems for $4.9 billion in a cash-and-stock deal.
And, sure, it’s not setting any records for price. But at a time when big-ticket deals, particularly if they involve AI, have been vexed by regulatory fears, it’s striking to see a decisive, multibillion-dollar acquisition by a publicly traded tech company. The math of this deal hints at its importance to AMD: The chip-maker is paying 75% in cash, and the company reported about $5.3 billion in cash and short-term investments at the end of Q2.
There are some other interesting wrinkles, if you take a closer look: For example, AMD says it’s not planning on keeping all of ZT as it currently stands, and is looking to sell ZT’s manufacturing business once the transaction’s closed. (AMD CEO Dr. Lisa Su told Reuters this means that AMD won't be competing with Super Micro.)
However, this is a deal that's about competition, as so many at this level are: Back when I covered the public markets, analysts often talked about AMD as the Nvidia challenger with a half-decent shot at making a dent in Nvidia-mania. And the acquisition of ZT fits squarely into this narrative: AMD plans to take this AI infrastructure provider, known for working with large cloud companies, and supercharge its AI data center, inference, and training capabilities.
"This acquisition is expected to have a substantial impact on AMD's competitive positioning,” said Joe Endoso, CEO of investment platform Linqto, via email. "Nvidia’s comprehensive offering has made it easier for developers to build AI applications on its chips. By acquiring ZT Systems, AMD is better equipped to compete with Nvidia’s integrated approach, potentially offering similar end-to-end solutions and capturing a larger share of the lucrative AI infrastructure market."
But there are also surrounding circumstances here bigger than AMD, bigger than even Nvidia—the AI ecosystem overall is growing and shifting rapidly. Right now M&A (or everything but) is a big story when it comes to venture-backed AI startups. We’ve seen numerous acquisitions, frequently by companies like Databricks, and high-profile acqui-hires, from Adept to Character. And the dealmaking likely isn’t over, and changes are coming anomalously fast.
"In every transition I’ve seen, it typically takes a long time to consolidate," said Umesh Padval, Thomvest Ventures managing director. "But in AI, because the cost of developing AI is so massive and it’s moving at a very fast pace. I’ve never seen the pace of innovation in AI in anything else—mobile phones, networking, PCs, anything. So, there’s this acceleration of consolidation. People just started investing in AI early last year. That was the boom. And 18 months later, companies are being sold, you have deals like Inflection. It’s consolidating much faster than I’ve seen in my lifetime, in 40 years."
Notably, ZT is its own ball of wax. The company was founded in 1994 by Frank Zhang, who still leads it and will join AMD post-deal. The only external funding I've found so far is a $850 million debt raise from 2023, according to PitchBook. So, there probably aren’t any VCs out there who are having an especially good week in light of ZT’s sale (if you’re out there, speak now or forever hold your peace).
Still, it’s hard to disentangle AMD’s ZT deal from the broader wheeling and dealing that’s rippling through the AI landscape. In some sense, I think of them as parallel stories—not the same, but within the same universe: The race to challenge Nvidia exists across from the venture-fueled world of high-flying AI valuations that (in some cases) have become disappointments.
But everyone's also doing more or less the same dance (or at least, dancing some of the same steps). Across the public and private markets, up and down the food chain, investors and businesses are locked in a delicate waltz based on assumptions about how much demand there will ultimately be for AI products and services. (This is a point that Sequoia’s David Cahn makes thoroughly in this Aug. 12 blog post.)
Right now, there’s demand for AI of all sorts. But that demand staying in place requires public companies like AMD to continue spending on it, and acquiring private companies in the sector. For the time being, it seems like they will.
"We are always looking strategically at organic and M&A investments to ensure we are positioning ourselves for future growth," an AMD spokesperson confirmed to Fortune.
There's also every indication that AI consolidation will likely continue, in fragmented and sometimes surprising ways. So, I may not be huddling over my pour-over every day saying, "wow, another doozy of a deal!" But I suspect it won’t be the last time before the year’s out.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Nina Ajemian curated the deals section of today’s newsletter.
