AMD will acquire server maker ZT Systems for $4.9 billion in cash and stock

AMD ( AMD ) said Monday it plans to buy server maker ZT Systems for $4.9 billion as the company seeks to expand its portfolio of artificial intelligence chips and hardware and battle Nvidia ( NVDA ).

AMD plans to pay 75% of the ZT Systems acquisition in cash and the rest in stock. The company had $5.34 billion in cash and short-term investments as of the second quarter.

The computing requirements for artificial intelligence have required technology companies to pair thousands of chips into clusters to achieve the required amount of data processing horsepower. The merging of large numbers of chips meant that the composition of entire server systems became increasingly important, which is why AMD is acquiring ZT Systems.

AMD shares rose nearly 3 percent in premarket trading.

“AI systems are our number one strategic priority,” AMD CEO Lisa Su said in an interview with Reuters.

The addition of ZT Systems engineers will allow AMD to more quickly test and release the latest AI graphics processing units (GPUs) at the scale that cloud computing giants such as Microsoft have demanded, Su said.

“The main way (ZT Systems) adds to the company is that we sell more GPUs,” Su said.

AMD plans to spin off the server manufacturing business and sell it once the deal closes, as it has no plans to compete with companies such as Super Micro Computer, Su said.

AMD has not yet held discussions with potential buyers.

ZT Systems CEO Frank Zhang will join AMD and report to AMD’s head of data center Forrest Norrod.

Closely held ZT Systems has about 2,500 employees, of which AMD plans to retain about 1,000 engineers. ZT Systems currently generates about $10 billion in annual revenue, Su said.

Executives expect the deal to close in the first half of 2025 and expect another 12 to 18 months to sell the manufacturing business.

Nvidia CEO Jensen Huang said at the company’s developer conference in March that the one-time chip designer now creates and sells entire data centers or the individual components needed to build one. This year, analysts expect the company to generate $105.9 billion from its data center segment, which includes chips and other AI hardware.

Su said last month that the company expects to collect about $4.5 billion in revenue from AI chips this year. The company’s clients include Microsoft and Meta platforms.

AMD expects ZT Systems to contribute to the company’s adjusted financial performance through the end of 2025.

(Reporting by Max A. Cherney in San Francisco; Editing by Chris Reese)