Chipmaker AMD (NASDAQ:AMD) announced on Monday it plans to acquire server manufacturer ZT Systems for $4.9 billion, a strategic move aimed at broadening its portfolio of AI chips and hardware to better compete with Nvidia (NASDAQ:NVDA).
The acquisition will be funded primarily with cash, covering 75% of the cost, with the remainder paid in stock. AMD reported $5.34 billion in cash and short-term investments at the end of the second quarter.
As the computing demands for AI continue to grow, requiring tech companies to link thousands of chips together in clusters for sufficient processing power, the configuration of entire server systems has become increasingly crucial. This is the primary reason behind AMD’s acquisition of ZT Systems.
"AI systems are our number one strategic priority," AMD CEO Lisa Su stated in an interview with Reuters.
Su noted that the integration of ZT Systems’ engineering team will enable AMD to expedite the testing and deployment of its latest AI GPUs at the scale required by cloud computing leaders like Microsoft.
"The main way (ZT Systems) is additive to the company is we sell more GPUs," Su added.
AMD shares closed 4.5% higher on Monday, while Nvidia added 4.3%.
Analysts weigh in on AMD-ZT Systems deal
Following the acquisition’s announcement, several investment firms shared their comments on the deal.
1) Analysts at Truist Securities said the buyout “plugs a hole for AMD, but doesn’t level the playing field with NVDA.”
“We see AMD's move to acquire ZT Systems as providing AMD with a path to delivering system-level designs for OEMs and web-scale companies."
"We see this as vaguely similar to Nvidia's capabilities embodied in its having designed and shipped its H100 GPU boards, DGX GPU systems, and GB200-NVL72 rack scale solutions. While NVDA appears to remain well ahead of AMD in system level design, its real advantage continues to be in software - starting with CUDA and extending to its libraries and installed base.”
2) Meanwhile, Bank of America analysts noted that the high-level rationale behind AMD’s move is understandable. However, analysts added they “don’t quite see any tangible benefits until CY26 at the earliest especially as it’s based on projecting incremental AMD GPU sales because of ZT, as opposed to scaling ZT’s existing business.”
“We are at-best of neutral view on the proposed transaction as near-term it appears to be a complex deal just to get 1000 system design engineers and then hoping they help drive incremental AMD GPU sales,” the team added.
3) Remarks from JPMorgan were more positive. They believe the ZT deal represents “a step in the right direction for AMD and should help to potentially close the gap between NVIDIA over the next few years.”
With 1,000 development/implementation engineers, the ZT Systems acquisition we believe will help AMD to synchronize its next-gen GPU introduction timelines with its customers compute systems (servers, rack scale solutions, compute clusters) which should ultimately result in faster time-to-deployment/bring-up.”
4) Separately, Morgan Stanley also see the takeover as a positive for AMD, but they believe it is a deal “which will take time to prove out.”
“With Nvidia's reported struggles in realizing some of their systems aspirations with GB200, we think anything AMD can do to put themselves in a better position is a positive, as the engineering challenges associated with a tighter integration of GPU/CPU/networking in new liquid cooling form factors are clearly significant.”
5) Lastly, investment bank Evercore ISI praised AMD’s move for ZT as it positions the chipmaker “to better compete at hyperscale companies for large scale training and inferencing AI systems, and we believe the divestiture of the manufacturing operations could translate to AMD recouping a large part of its $4.9bn cash and stock outlay.”