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Thematic Spotlight: AMD Acquires Server Builder ZT Systems

Semiconductors & AI

In one of the biggest IT acquisitions of the year, AMD has announced plans to acquire ZT Systems, a server systems designer and manufacturer, for approximately US$4.9 billion.¹ The chip designing giant says the move was a natural one to support its ongoing transition into artificial intelligence chips and hardware, as well as further its ensuing battle for dominance with industry titan, Nvidia. AMD has proposed to pay for ZT System’s acquisition with a blend of 75% cash and 25% stock. As of Q2 2024, AMD held US$5.34 billion in cash and short-term investments.²

AI chips have become a holy grail among computer chip designers over the past two-years after Nvidia’s frankly explosive rise to stardom. However, standalone AI chips are not sufficient to power the increasingly complex generative AI models that companies now pursue, instead tech companies require thousands of computer chips to be strung together in a server platform to efficiently process trillions of datapoints. AMD’s acquisition of ZT Systems, a server system maker, is clearly yet another step in its attempt to catch up with Nvidia’s overwhelming dominance in the emerging AI server market. In addition to improved expertise on server systems, AMD also claims the addition of ZT System engineers should allow the chip designer to better test and roll out more advanced AI GPUs for the cloud – which many hyperscalers such as Microsoft and Google now require.

AMD will, however, remain a design and software-only company, as the firm plans to break off and sell off ZT System’s physical server manufacturing business.³ The chip designer has expressed that it has no interest in competing with server constructors such as the currently scandal embroiled Super Micro Computer Inc.⁴ AMD executives expect the acquisition to close in mid-2025, with the divestment of the manufacturing arm slated to take a further year or two.⁵ ZT Systems is expected to contribute to AMD’s adjusted financial performance by EOY 2025.⁶

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Authored by: Justin Lin

Date:
Sep 3, 2024

Category:
Insights

Topics:
ETF Express, Thematic Spotlight

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