Chipmaker Advanced Micro Devices plans to buy computer hardware design firm ZT Systems for $4.9 billion in a move to better compete with artificial intelligence systems powerhouse Nvidia. AMD stock rose on the news.
Santa Clara, Calif.-based AMD announced the transaction before the market open Monday. It expects to close the cash-and-stock deal in the first half of 2025. AMD is paying for ZT with 75% cash and 25% stock. The acquisition is forecast to be accretive to adjusted earnings by the end of 2025, AMD said.
Based in Secaucus, N.J., ZT Systems is one of the largest private providers of AI training and inference infrastructure in the world, serving some of the largest cloud-computing companies. It generates over $10 billion in annual revenue. However, AMD Chief Executive Lisa Su told the Wall Street Journal she intends to sell ZT's manufacturing business and keep its systems design business.
ZT Systems specializes in producing servers and related hardware for cloud and AI data centers.
The acquisition is the latest move by AMD to become more of a complete AI systems provider like AI chip rival Nvidia. Last week, AMD completed its $665 million acquisition of Silo AI, the largest private AI lab in Europe.
AMD Stock Rises On Deal News
On the stock market today, AMD stock rose 4.5% to close at 155.28. Nvidia stock climbed 4.4% to close at 130.
"Our acquisition of ZT Systems is the next major step in our long-term AI strategy to deliver leadership training and inferencing solutions that can be rapidly deployed at scale across cloud and enterprise customers," Su said in a news release.
She added: "ZT adds world-class systems design and rack-scale solutions expertise that will significantly strengthen our data center AI systems and customer enablement capabilities. This acquisition also builds on the investments we have made to accelerate our AI hardware and software roadmaps."
Profit Margin Impact?
AMD stock analysts said the acquisition could pressure the company's profit margins.
"The surprise, in our view, is that AMD would look to move downstream and enter into the systems space in light of the typically more modest margins," Wedbush Securities analyst Matt Bryson said in a client note.
However, if AMD focuses exclusively on AI systems with the acquisition, any margin dilution could be limited, he said. Bryson rates AMD stock as outperform with a price target of 200.
Jordan Klein, a trading desk analyst with Mizuho Securities, said AMD's purchase of ZT validates Nvidia's integrated strategy of selling self-contained, full-rack system hardware designs.
"AMD clearly needed to gain this expertise to keep up with Nvidia," Klein said in a client note. "This is the way the cloud hyperscale market is going."
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