AMD Strengthens AI Position with $5 Billion Acquisition, Challenging Nvidia

Advanced Micro Devices (AMD) has announced a significant strategic move to bolster its position in the highly competitive artificial intelligence (AI) and data-center markets by agreeing to acquire ZT Systems, a designer of data-center equipment, for nearly $5 billion. This acquisition is one of AMD's largest to date and is part of the company's broader strategy to challenge Nvidia's dominance in AI computation.

ZT Systems, a privately held company based in Secaucus, New Jersey, was founded in 1994 and has grown into a significant player in the data-center space, with more than $10 billion in annual sales. The company specializes in designing and manufacturing servers, server racks, and other critical infrastructure used in the massive data centers that power AI systems like ChatGPT. AMD CEO Lisa Su highlighted that ZT's main value lies in its ability to provide hands-on assistance to customers in setting up these large-scale AI training clusters. By integrating ZT Systems' capabilities, AMD aims to offer a more comprehensive suite of chips, software, and system designs to major data-center clients, including tech giants like Microsoft and Meta Platforms.

Despite the acquisition, AMD plans to divest ZT Systems' manufacturing operations, retaining only the system-design business. This strategic decision aligns with AMD's focus on enhancing its design expertise and providing tailored solutions for building advanced AI infrastructure. Su emphasized that the acquisition would enable AMD to work more closely with its customers, helping them to optimize their data centers and AI training clusters.

This move by AMD is seen as a direct effort to compete with Nvidia, which has been expanding its own data-center offerings in recent years. Nvidia's acquisition of Mellanox in 2020 for nearly $7 billion brought in advanced data transfer capabilities that have been crucial in maintaining its leadership during the AI boom. Nvidia has also been focusing on integrating its chip designs with server and data-center infrastructure to offer superior performance.

AMD's acquisition of ZT Systems follows other significant investments in the data-center and AI sectors. In 2022, AMD acquired Xilinx, a leading chip maker, in an all-stock deal valued at nearly $50 billion, and also purchased Pensando Systems, a data-center chip and networking startup, for $1.9 billion. These acquisitions are part of AMD's broader strategy to enhance its capabilities in the data-center market and capitalize on the growing demand for AI-driven solutions.

While Nvidia remains the dominant player in the AI chip market, AMD has been making steady progress. Recently, Su raised AMD's forecast for AI chip sales to $4.5 billion for this year, up from the $3.5 billion forecasted in January, reflecting the company's strong performance and growing market share.

The deal for ZT Systems, valued at $4.9 billion, includes a contingent payment of up to $400 million based on certain post-closing milestones. The acquisition is expected to close in the first half of next year, pending regulatory approvals. ZT Systems' CEO, Frank Zhang, will remain with the company after the acquisition, expressing optimism that joining AMD will enable ZT to play an even larger role in designing the AI infrastructure that will shape the future of computing.

This acquisition is a significant step for AMD as it continues to build its presence in the AI and data-center markets. It follows other notable deals, including the $665 million acquisition of Silo AI, a Finnish company specializing in AI integration, announced last month. These strategic moves underscore AMD's commitment to expanding its capabilities and competing with industry giants like Nvidia in the rapidly evolving AI landscape.