AMD buys server maker ZT Systems for $4.9 billion to expand its AI chip and take on Nvidia

Advanced Micro Devices (AMD) announced on Monday it plans to acquire server maker ZT Systems for $4.9 billion to expand its AI chips and hardware to better compete with industry giant Nvidia.

The acquisition will be funded 75% in cash, with the remainder covered by AMD stock. As of the second quarter, AMD held $5.34 billion in cash and short-term investments.

Post-acquisition, ZT Systems CEO Frank Zhang will join AMD and report to Forrest Norrod, who heads AMD’s data center division. The company anticipates that ZT Systems will positively impact its financial performance by late 2025.

This news came just a month after AMD acquired Finnish AI startup Silo AI for $665 million, a move to enhance its AI chip offerings further.

The increasing demands of AI processing require tech companies to link thousands of chips in clusters to handle the massive data loads. The complexity of these systems has made server design increasingly critical, prompting AMD to pursue the acquisition of ZT Systems.

“AI systems are our top strategic focus,” AMD CEO Lisa Su told Reuters in an interview. She highlighted that ZT Systems’ engineers would enable AMD to scale up the testing and deployment of its latest AI GPUs, meeting the needs of major cloud providers like Microsoft.

Su noted that the acquisition will primarily boost AMD’s GPU sales. AMD intends to separate and eventually sell its server manufacturing business once the deal is finalized, as it does not plan to compete directly with companies like Super Micro Computer. Discussions with potential buyers for the manufacturing arm have not yet occurred.

ZT Systems, a privately held company with about 2,500 employees, generates roughly $10 billion in annual revenue. AMD plans to retain around 1,000 of ZT Systems’ engineers.

The deal is expected to close in the first half of 2025, with an additional 12 to 18 months anticipated for the sale of the manufacturing business.

Nvidia CEO Jensen Huang remarked earlier this year that Nvidia has evolved from a chip designer to a company that now offers entire data center solutions. Analysts expect Nvidia to generate $105.9 billion from its data center segment this year.

AMD projects approximately $4.5 billion in AI chip revenue for 2024, with clients including Microsoft and Meta Platforms.

The latest acquisition also follows AMD’s recent AI-focused endeavors, including the purchase of AI software firms Mipsology and Nod.ai last year, and investments exceeding $125 million in over a dozen AI companies in the past year alone

As AMD continues to position itself as a formidable player in the AI industry, the acquisition of Silo AI underscores the company’s commitment to advancing its AI capabilities and competing with the likes of Nvidia.