Advanced Micro Devices (AMD, Financial) is boosting its AI capabilities by acquiring ZT Systems for $4.9 billion in cash and stock. This follows AMD's July 10 purchase of Silo AI for $665 million. Despite the different price tags, the market reacted similarly, pushing AMD shares higher as it competes with NVIDIA (NVDA, Financial) and Intel (INTC, Financial).
- What is ZT Systems?
ZT Systems specializes in full rack deployment for hyperscale data centers, including servers, storage, and switches. It also has a data center infrastructure manufacturing business, which AMD plans to partner strategically to offload.
- Why is it a good fit for AMD?
ZT Systems' extensive exposure to cloud and enterprise organizations like Microsoft (MSFT, Financial) expands AMD's market and enhances its AI business. AMD can integrate its chips into ZT's server racks and leverage its ecosystem of original equipment manufacturers and original design manufacturers to deliver AI infrastructure at scale.
Although AMD did not disclose ZT Systems' financials, it expects the acquisition to be accretive on a non-GAAP basis by the end of next year, shortly after the anticipated closing date in the first half of 2025. Including this nearly $5 billion purchase, AMD will have invested over $6 billion to enhance its AI presence, competing with NVDA and INTC in this hotly contested space.
AMD's investment in AI appears sound. Last quarter, AMD raised its Data Center GPU revenue projection to over $4.5 billion for this year, up from $4.0 billion three months earlier. While the direct impact of AI demand is unclear, this is a positive development, especially given criticisms that too much money is being allocated to AI relative to its returns so far.
AMD's $4.9 billion acquisition of ZT Systems could be the first of many future purchases to strengthen its AI industry position and compete with NVDA, which is far ahead in revenue. For instance, while AMD projects $4.5 billion in Data Center GPU revenue this year, NVDA recorded $47.5 billion in Data Center revenue in FY24 and is on pace to double this in FY25.
Although AMD has a long way to go to catch up to NVDA, it is outpacing INTC, which saw its Data Center revenue contract year-over-year last quarter. Adding ZT Systems can further distance AMD from INTC in the Data Center industry while helping it gain ground on NVDA. Lastly, AMD's ZT Systems acquisition underscores the strong demand for AI, indicating promising future quarterly performances.
