Advanced Micro Devices has entered into an agreement to acquire ZT Systems, a company specializing in the creation of data-center equipment for cloud computing and artificial intelligence. This acquisition would strengthen Advanced Micro Devices’ efforts to challenge Nvidia’s dominant position in AI computation. The deal is valued at almost $5 billion. The agreement, which ranks among AMD’s most significant, is a strategic effort to provide a wider range of chips, software, and system designs to major data-center clients like Microsoft and Meta Platforms (owner of Facebook). This endeavor aims to enhance performance by establishing strong connections between these products.

ZT Systems, headquartered in Secaucus, New Jersey, is a privately held company that was established in 1994. The company specializes in the design and production of servers, server racks, and other infrastructure used to store and interconnect processors within large-scale data centers. These data centers are responsible for powering artificial intelligence systems like ChatGPT. In an interview, Lisa Su, the CEO of AMD, stated that ZT’s annual sales exceed $10 billion, which is over half of the $22.7 billion revenue reported by her firm last year. Nevertheless, AMD intends to divest ZT’s manufacturing operations after the deal is finalized, while retaining its system-design operations.

Su stated that the primary benefit of ZT for her organization is in providing customers with extensive support in establishing large-scale data centers, where groups of chips are utilized to train artificial intelligence systems. “It enables me to offer assistance in constructing your upcoming training cluster and inquire about your priorities,” Su stated. “I currently possess an extensive design team that is capable of assisting you in achieving that goal.”

The agreement has the potential to enhance AMD’s competitive stance against Nvidia, as Nvidia has also made significant additions to its data-center products in recent years. In 2020, Nvidia acquired Mellanox, a networking business, for a substantial amount of money, approximately $7 billion. This acquisition has allowed Nvidia to enhance its skills in transferring data at a supercomputing level, which has been essential in maintaining its competitive advantage amid the surge in artificial intelligence. Additionally, it has placed a growing emphasis on creating designs specifically tailored for servers and data centers where its chips are utilized.

AMD has undertaken additional actions in recent years to enhance its capabilities in the data-center sector, such as its acquisition of Xilinx, a semiconductor manufacturer, in 2022. This acquisition was completed through an all-stock transaction with a closing value of approximately $50 billion. In 2022, AMD acquired Pensando Systems, a startup specializing in data-center chips and networking, for a sum of $1.9 billion. Although Nvidia is currently the leading beneficiary of the AI boom in the chip sector, AMD has also been making progress. Last month, Su increased her projected sales for the company’s AI chips to $4.5 billion for this year, following the release of quarterly results that above analysts’ predictions. In January, she predicted that sales would reach $3.5 billion.

AMD assessed the cash-and-stock agreement for ZT at a total worth of $4.9 billion, which includes a possible additional payment of up to $400 million subject upon the achievement of specific milestones following the completion of the purchase. AMD announced that the transaction is anticipated to be finalized in the first half of the upcoming year, pending regulatory approvals. Additionally, it was stated that Frank Zhang, the Chief Executive of ZT, will continue in his role following the acquisition. In a statement, Zhang expressed that joining AMD will enable ZT to have a more significant impact in developing the AI infrastructure that is shaping the future of computing.

The ZT agreement is among AMD’s most significant acquisitions, following the Xilinx acquisition and its $5.4 billion purchase of ATI Technologies in 2006. Last month, AMD made a smaller AI-related acquisition by purchasing Silo AI, a Finnish firm that specializes in assisting customers with the integration of artificial intelligence into their products and processes. The deal was valued at roughly $665 million.