AMD Makes a $4.9B A.I. Acquisition to Challenge Nvidia’s Dominance

AMD is acquiring a server maker for nearly $5 billion to bolster its position against Nvidia (NVDA). The chipmaker today (Aug. 19) announced the purchase of ZT Systems, a data center infrastructure provider, to help the company accelerate its deployment of A.I. chips to customers like Microsoft (MSFT) and Meta (META). The acquisition, one of the largest in AMD’s history, is “the next major step in our long-term A.I. strategy to deliver leadership training and inferencing solutions that can be rapidly deployed at scale across cloud and enterprise customers,” AMD CEO Lisa Su said in a statement. “ZT adds world-class systems design and rack-scale solutions expertise that will significantly strengthen our data center A.I. systems and customer enablement capabilities.” AMD’s shares rose 3 percent this morning in response to the news.

Headquartered in Secaucus, N.J., ZT specializes in servers and other infrastructure required for data centers, which house clusters of A.I. chips and have become an increasingly valuable area for Big Tech companies as they spend billions of dollars on training A.I. models.

AMD has agreed to purchase ZT in a cash and stock transaction valued at $4.9 billion, according to the announcement. The chipmaker had more than $5 billion in cash and short-term investments at the end of June. While AMD will acquire ZT’s system design and customer enablement capabilities, its manufacturing business will eventually be broken off and sold. Pending regulatory approval, the deal is expected to close in the first half of 2025.

As part of the transaction, ZT CEO Frank Zhang will join AMD to lead its manufacturing business and report to AMD’s executive vice president Forrest Norrod, while ZT president Doug Huang is set to lead AMD’s design and customer enablement teams. Around 1,000 of ZT’s 2,500 engineers will be retained by AMD, Su told Reuters. ZT currently generates an annual revenue of around $10 billion. In the latest quarter ended June, AMD plowed in $5.8 billion in revenue and $1.1 billion in net income.

The acquisition is just the latest move by AMD to challenge competitors like Nvidia, which is the market leader with an estimated 70 percent of A.I. chip market share. Nvidia is also currently the world’s second most valuable company behind Microsoft with a market cap of more than $3 trillion, while AMD’s market cap totals at around $249 billion. In a bid to catch up, AMD has invested more than $1 billion in the last 12 months to improve its A.I. software capabilities and research and development activities. Last month, for example, it spent $665 million to purchase the Finnish startup Silo AI to expand its A.I. chip capabilities.

Both AMD and Nvidia also recently revealed plans to amp up their A.I. chip timelines. Nvidia in June unveiled an upcoming A.I. chip platform known as “Rubin” and announced its intention to produce next-generation chips on a one-year rhythm, while AMD similarly said its new A.I. accelerators would be developed on an annual cadence going forward. The company’s acquisition of ZT will help strengthen its ability to follow through on these ambitious plans, according to Su. “We want to make sure our customers are able to deploy and use all that technology as fast as possible,” she told analysts. “We think it’s a significant acceleration.”