AMD announced on Monday its intention to purchase ZT Systems, a server manufacturer, for USD 4.9 billion. The acquisition will expand AMD’s artificial intelligence chip and hardware portfolio to compete with Nvidia.

AMD plans to finance 75% of the ZT Systems acquisition with cash and the remainder with stock. As of the second quarter, the company had USD 5.34 billion in cash and short-term investments.

The growing demands for AI computing have led tech companies to connect thousands of chips in clusters to meet the required data processing power. As a result, the design of entire server systems has become increasingly important, prompting AMD to acquire ZT Systems.

AMD CEO Lisa Su stated in an interview with Reuters that AI systems are their primary strategic focus.

Su mentioned that integrating ZT Systems’ engineers will enable AMD to efficiently test and launch its latest AI graphics processing units (GPUs) on the scale of cloud computing giants like Microsoft.

She emphasised that ZT Systems primarily adds value to the company by increasing GPU sales. Following the announcement, AMD’s shares increased by over 2%, while Nvidia’s rose by 1.4%.

According to Su, once the deal is finalised, AMD intends to divest from its server manufacturing business, as it does not intend to compete with companies such as Super Micro Computer.

AMD has yet to enter into discussions with potential buyers. ZT Systems’ CEO Frank Zhang will join AMD and report to Forrest Norrod, AMD’s data centre chief.

AMD plans to retain about 1,000 ZT Systems’ roughly 2,500 employees, resulting in approximately USD 150 million in annualised operating expenses. Currently, ZT Systems generates around USD 10 billion in annual revenue, most of which comes from its manufacturing unit.

Executives anticipate that the deal will be completed in the first half of 2025 and that the sale of the manufacturing business will take 12 to 18 months. AMD expects the acquisition to contribute to its adjusted financial performance by the end of 2025.

CFO Jean Hu stated that any dilution from the deal in the first year after its closure in 2025 would be offset by increased sales of graphics processor units, resulting in a break-even effect for the agreement. In 2026, the acquisition will accelerate revenue growth, Hu added.

Kinngai Chan, a managing director at Summit Insights, believes that the sale of ZT Systems’ manufacturing business will have no long-term impact on AMD and that the deal could help expand AMD’s business serving cloud customers. Having more engineers is beneficial.

Nvidia CEO Jensen Huang mentioned at the company’s developer conference in March that the chip designer now sells entire data centres or the individual components needed to build one.

Last month, Su reported that the company expects to earn approximately USD 4.5 billion from AI chip revenue this year, with customers including Microsoft and Meta Platforms.

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