AMD buys ZT Systems to gain more AI talent in the race to Nvidia

August 19, 2024
Madellina Monica
popnews

Advanced Micro Devices won't dethrone Nvidia as the leading AI chipmaker anytime soon. But the company's latest AI acquisition shows it's willing to get creative to bolster its position in the fast-growing market. AMD announced a $4.9 billion deal to buy privately held server maker ZT Systems on Monday. The transaction, expected to close in 2025, will be 75% cash and the rest in stock. Jim Cramer says the deal is a smart move to better serve the tech giants that are big buyers of artificial intelligence chips. But it's not enough to overtake Nvidia's dominance in the market. “People say this is an Nvidia killer. Forget that. It's something that helps [AMD] keep up with Nvidia,” he added.[CEO Lisa Su] couldn't keep up with that. Well, now it can.” Specifically, the deal is about AMD trying to keep up with Nvidia in developing so-called AI systems, an increasingly important part of the market as AI workloads become more complex and popular. The graphics processing units (GPUs) developed by Nvidia and AMD perform the calculations that enable AI applications — but they are just one part of the larger AI computing network, which generally includes thousands of servers stitched together in data centers. Nvidia has significant advantages in developing system solutions for its AI chips. For example, a key product in its next-generation Blackwell line, the GB200 NVL72, is described as a rack-scale system. AMD bought ZT Systems because of its employees' expertise in the field. In fact, AMD plans to divest ZT Systems' server manufacturing business, which accounted for the majority of its revenue last year, according to analysts at Bank of America. In other words, AMD bought ZT Systems for its engineers and other employees who work in server design to make its GPU offerings more attractive to the data center operators who are buying or looking to buy them. Think of tech heavyweights like club holdings Microsoft, Amazon, Meta Platforms and Google parent Alphabet. “She's sticking to her $400 billion AI forecast for 2027,” Jim said, referring to Su's outlook on the size of the AI chip market in the coming years. “And when that happens, she's going to need every engineer possible… Lisa Su had to do that.” AMD YTD Mountain Advanced Micro Devices (AMD) Year-to-date Performance AMD shareholders also seem bullish on the acquisition. Shares gained nearly 4% to around $154 per share, outperforming the broader market and a closely followed index of semiconductor stocks. AMD's growing AI chip business is a key part of our investment thesis. Quarterly sales of its MI300 chips, which will launch in late 2023, exceeded $1 billion for the first time in the April-June period. Management also raised its full-year revenue forecast for the chip to over $4.5 billion, up $500 million from previous forecasts in April. Su noted during AMD's second-quarter earnings call on July 30 that the company would invest more in system integration of its chips – comments that take on a different light after Monday's announcement. Wall Street analysts have mixed views on the deal. KeyBanc argued that the “acquisition is likely to strengthen AMD's complete server system capabilities and allow the company to remain competitive with NVDA's GB200 NVL rack solutions for complete systems.” Meanwhile, Bank of America said the firm “has a neutral view at best on the proposed transaction, as it seems a complex deal in the short term just to get 1,000 system design engineers and then hope they help boost incremental AMD GPU sales.” Still, analysts reiterated their buy rating on the shares. This is AMD's second acquisition this summer, designed to strengthen the company's competitive position against Nvidia, which has built a robust software ecosystem over the years that complements its chips. Last week, AMD completed the purchase of Silo AI, a European AI lab that will expand its software capabilities. (Jim Cramer's Charitable Trust is long AMD, NVDA, AMZN, MSFT, META and GOOGL. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. After sending a trade alert, Jim will wait 45 minutes before buying or selling a stock from his Charitable Trust's portfolio. If Jim has spoken about a stock on television, he will wait 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION MENTIONED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY RECEIVING INFORMATION RELATED TO THE INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.

Lisa Su, Chairman and CEO of Advanced Micro Devices (AMD), delivers the opening speech at Computex 2024, Taiwan's leading technology exhibition, in Taipei on June 3, 2024.

I-Hwa Cheng | Afp | Getty Images

Advanced micro devices will not replace NVIDIA as a leading AI chipmaker in the near future. But the company's latest AI acquisition shows that it is willing to get creative to strengthen its position in the fast-growing market.

AMD buys ZT Systems to gain more AI talent in the race to Nvidia

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