Advanced Micro Devices Inc. (NASDAQ:AMD) announced on Monday its $4.9 billion acquisition of ZT Systems, highlighting the company’s aggressive expansion into the AI and data center markets, according to Goldman Sachs analyst Toshiya Hari.
The acquisition, expected to close in the first half of 2025, aims to significantly enhance AMD’s competitive edge by integrating ZT Systems’ expertise in compute, storage, and accelerator solutions tailored for cloud and telecom service providers.
Key Motivations Behind The Deal
Hari explained that the primary driver behind AMD’s acquisition of ZT Systems is the potential to bolster its presence in the AI data center market, an industry projected to be worth $400 billion by 2027.
“The acquisition of ZT Systems will bring in ~1,000 engineers with systems design and rack-scale solutions expertise that would augment AMD’s silicon and software capabilities, and ultimately enable AMD to offer more competitive solutions to hyperscale customers while improving the company’s time-to-market,” Hari wrote.
This talent infusion is expected to accelerate AMD’s ability to deliver more competitive solutions to hyperscale customers, a critical factor in gaining market share in the rapidly evolving AI landscape.
The deal also aligns with AMD’s broader AI strategy, which has seen the company invest over $7.5 billion in acquisitions related to AI technology. These investments include previous purchases of Pensando, Mipsology, Nod.ai, and Silo AI.
While the $4.9 billion transaction is substantial, AMD’s management expects the acquisition to be accretive by the end of 2025.
An important aspect of the acquisition is AMD’s intent to divest ZT Systems’ manufacturing business, which accounted for the majority of ZT Systems’ $10 billion in revenue over the past year.
By selling off this division, AMD aims to focus more on the high-margin aspects of ZT Systems’ operations, while minimizing exposure to the lower-margin, capital-intensive manufacturing segment, the analyst notes.
Market Reaction And AMD Outlook
The market has responded positively to the acquisition, with AMD shares rising 4.5% on the day of the announcement, making it the top performer within the Nasdaq 100 and the second-best one within the S&P 500.
This positive market sentiment reflects investor confidence in AMD’s strategy to strengthen its AI capabilities through strategic acquisitions.
Goldman Sachs maintains a 12-month price target of $175 for AMD, viewing the acquisition as a crucial step in solidifying AMD’s position in the AI data center market.
The price target represents a 13% upside from AMD’s closing price on the day of the announcement, indicating continued optimism about the company’s growth prospects despite potential risks, including competitive pressures and execution challenges.
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