AMD Makes a Bold Move: Buying ZT Systems to Dominate the AI Market and Take On NVidia!

Summary

AMD is set to acquire server builder ZT Systems for $4.9 billion in a strategic move to bolster its AI capabilities and compete with Nvidia. The acquisition aims to accelerate the development and deployment of AMD's AI chips, targeting a market projected to grow 70% from 2023 to 2027. AMD plans to retain key engineers from ZT Systems to enhance its AI product lineup, while the manufacturing arm will be sold off to avoid competition with customers. The deal is expected to break even by 2026, with AMD projecting $4.5 billion in AI chip revenue for the year.

Takeaways

• 📈 AMD is acquiring server builder ZT Systems for $4.9 billion in cash and stock to expand its AI capabilities.
• 💡 The move is driven by AMD CEO Lisa Su's goal to compete with Nvidia in AI, where Nvidia currently dominates with 80-90% market share.
• 🚀 AMD's AI chip, the MI300, is their key leverage into the AI market, aiming to capture a significant portion of the growing AI market.
• 💻 AMD projects its AI chip to generate $4.5 billion in revenue this year, a fraction of Nvidia's $22.5 billion in AI revenue in the last quarter alone.
• 💼 AMD's data center revenue, which includes CPUs and not just GPUs, was $2.8 billion last quarter, indicating a need to grow in the AI segment.
• 🔍 AMD is fighting on multiple fronts, including AI, client desktop GPUs, and CPUs, against competitors like Nvidia and Intel.
• 📉 Historically, AMD faced financial struggles, nearly going bankrupt before Lisa Su's leadership turned the company around with a focus on CPUs.
• 💼 The acquisition of ZT Systems is primarily for their engineering talent, which AMD aims to use to accelerate AI chip development and deployment.
• 💵 AMD plans to finance the acquisition with 75% cash and 25% stock, expecting the deal to break even by 2026 and contribute positively to revenue thereafter.
• 🔄 AMD intends to sell off ZT Systems' server manufacturing business to avoid competing with its customers, focusing on leveraging the engineering expertise for AI innovation.

Q & A

What is AMD's recent acquisition in the AI market?

AMD has acquired server builder ZT Systems for $4.9 billion in cash and stock.

Why is AMD making this acquisition?

AMD is making this move to expand its portfolio of artificial intelligence chips and hardware, and to compete more effectively with Nvidia in the AI market.

What is AMD's current market share in the AI market compared to Nvidia?

Nvidia has a significant lead with 80 to 90% market share in the AI market, while AMD is playing catchup with a much smaller share.

What is AMD's projected revenue from its AI chips this year?

AMD is projecting that its AI chips will generate about $4.5 billion worth of revenue this year.

How does AMD's projected AI revenue compare to Nvidia's recent quarterly AI revenue?

Nvidia's AI revenue alone was $22.5 billion in the last quarter, which is significantly higher than AMD's projected $4.5 billion for the entire year.

What is AMD's strategy in acquiring ZT Systems?

AMD's strategy is to leverage ZT Systems' engineering talent to more quickly test and roll out its latest AI Graphics Processing Units (GPUs) to cloud computing giants.

What is AMD's plan for ZT Systems' manufacturing business after the acquisition?

AMD plans to break off and sell ZT Systems' server manufacturing business to avoid competing with its customers.

How does the acquisition of ZT Systems align with AMD's focus on AI?

The acquisition is part of AMD's shift in focus from CPUs to GPUs and artificial intelligence, aiming to capture a significant portion of the growing AI market.

What is the expected financial impact of the ZT Systems acquisition on AMD?

AMD expects the deal to contribute to its adjusted financial performance by 2025, with a break-even effect anticipated for 2026 due to increased sales of graphics processing units.

How does the acquisition of ZT Systems fit into AMD's long-term strategy?

The acquisition is expected to accelerate revenue growth and strengthen AMD's position in the AI segment, particularly by increasing its ability to supply AI chips to hyperscalers like Microsoft, AWS, and Google Cloud.

What is AMD's stance on competing with its customers in the server manufacturing space?

AMD does not intend to compete with its customers in the server manufacturing space, which is why it plans to sell off the manufacturing portion of ZT Systems.