AMD is making a decisive move to fortify its position in the rapidly expanding AI market by acquiring server manufacturer ZT Systems for $4.9 billion. This strategic acquisition is set to intensify AMD's rivalry with Nvidia, as the company seeks to expand its arsenal of AI chips and hardware.
In a deal that underscores AMD's aggressive pursuit of AI dominance, the company will finance 75% of the acquisition with cash, drawing from its $5.34 billion cash reserves and short-term investments as of Q2, with the remainder paid in stock. This move comes as AI's computing demands have skyrocketed, requiring tech giants to string together vast clusters of chips to meet data processing needs. As the architecture of server systems becomes increasingly critical, AMD's acquisition of ZT Systems signals its intent to control not just the chips but the entire server ecosystem.
AMD's stock saw a nearly 3% jump in premarket trading on the announcement-a clear indication that investors are backing the company's strategic pivot. AMD CEO Lisa Su, in an interview with Reuters, made it clear that AI is at the forefront of the company's strategy. "AI systems are our number one strategic priority," Su stated, highlighting the importance of integrating ZT Systems' engineering talent to accelerate the deployment of AMD's latest AI GPUs at the scale required by cloud giants like Microsoft.
However, AMD isn't looking to become a server manufacturer. Su revealed plans to divest the server manufacturing arm of ZT Systems post-acquisition, avoiding direct competition with established players like Super Micro Computer. This surgical approach ensures that AMD remains laser-focused on selling more GPUs, the core driver of its AI ambitions.
ZT Systems CEO Frank Zhang will join AMD, reporting to Forrest Norrod, the head of AMD's data center division. With ZT Systems' 2,500-strong workforce, AMD plans to retain about 1,000 engineers-key assets in AMD's push to dominate the AI hardware landscape. Currently, ZT Systems generates roughly $10 billion in annual revenue, a figure that Su expects will bolster AMD's financial performance by the end of 2025.
This acquisition positions AMD to challenge Nvidia more directly, especially as Nvidia continues to blur the lines between chip design and complete data center solutions. Nvidia CEO Jensen Huang, at the company's March developer conference, emphasized that Nvidia is now in the business of creating entire data centers, not just components. Analysts anticipate Nvidia's data center segment, including AI hardware, will generate a staggering $105.9 billion this year.
In contrast, AMD projects $4.5 billion in AI chip revenue this year, with major clients like Microsoft and Meta Platforms. The integration of ZT Systems is expected to fuel AMD's growth, making it a formidable competitor in the AI chip market-a space where Nvidia has long held sway.
As the deal progresses, AMD's ability to capitalize on ZT Systems' capabilities will be crucial in determining whether this bold acquisition will indeed disrupt Nvidia's dominance or simply keep AMD in the race.
