AMD has taken a significant step in its ongoing efforts to challenge NVIDIA’s dominance in the artificial intelligence (AI) market by agreeing to acquire ZT Systems, a major player in AI infrastructure, in a deal valued at $4.9 billion.
This acquisition, comprising cash and stock, marks another substantial investment by AMD as it bolsters its position in the rapidly growing AI sector.
Strategic Move to Accelerate AI Chip Adoption
AMD’s acquisition of ZT Systems is expected to enhance the adoption of its Instinct line of AI data center chips, directly competing with NVIDIA’s widely used graphics processing units (GPUs). ZT Systems, a private company with three decades of experience, specializes in building custom computing infrastructure for AI hyperscalers.
Although the company does not publicly disclose its clientele, its customers reportedly include tech giants like Microsoft, Meta, and Amazon, which are heavily invested in AI development.
This deal represents AMD’s largest acquisition since it bought Xilinx for $35 billion in 2022. According to AMD CEO Lisa Su, the acquisition will bring around a thousand top-tier design engineers into AMD’s team, allowing the company to develop silicon and systems simultaneously.
This move is seen as a way to accelerate the deployment of AMD’s AI infrastructure in data centers, which is a crucial demand from its customers.
The transaction, pending regulatory approval, is anticipated to close in the first half of 2025. Once finalized, New Jersey-based ZT Systems will be integrated into AMD’s data center business group. The deal’s $4.9 billion valuation includes up to $400 million contingent on achieving specific post-closing milestones. AMD has enlisted Citi and Latham & Watkins as advisors for the acquisition, while ZT Systems has retained Goldman Sachs and Paul Weiss.
Competing with NVIDIA in the AI Market
AMD’s acquisition of ZT Systems is part of a broader strategy to challenge NVIDIA’s dominance in the AI data center chip market. NVIDIA, which briefly became the world’s most valuable company earlier this year, has established a stronghold in the market by offering a comprehensive “systems” approach.
This includes providing end-to-end computing infrastructure, such as pre-packaged server racks, networking equipment, and software tools, making it easier for developers to build AI applications using NVIDIA chips.
By acquiring ZT Systems, AMD is signaling its intent to build a similar system offering. AMD introduced its MI300 line of AI chips last year and plans to launch its next-generation MI350 chip shortly, aimed at competing with NVIDIA’s new Blackwell line of GPUs. In a notable development, Microsoft adopted the MI300 for its Azure cloud platform in May, using it to run AI models like OpenAI’s GPT-4. In the three months leading up to June 30, AMD’s revenue from these chips exceeded $1 billion for the first time.
Despite these gains, AMD’s data center revenue still pales compared to NVIDIA’s, which brought in $22.6 billion in the quarter ending in April. The acquisition of ZT Systems is viewed as a crucial move to close this gap and drive the adoption of AMD’s AI solutions at a faster pace.
Continued Investments in AI
In addition to the ZT Systems deal, AMD has been actively increasing its investments in AI research and development. Over the past year, the company has spent over $1 billion to expand its AI hardware and software ecosystem. In July, AMD announced the acquisition of Finnish AI start-up Silo AI for $665 million, marking the largest acquisition of a privately held AI start-up in Europe in a decade.
As AMD pushes forward with these strategic acquisitions and investments, the company aims to position itself as a formidable competitor in the AI market, with the goal of challenging NVIDIA’s dominance and capitalizing on the growing demand for AI infrastructure.
