AMD announced on Monday its intention to acquire server manufacturer ZT Systems for $4.9 billion, aiming to bolster its lineup of artificial intelligence chips and hardware and compete with Nvidia. The company plans to fund 75% of the acquisition with cash, with the remaining 25% in stock. As of the second quarter, AMD held $5.34 billion in cash and short-term investments.

The growing demand for AI computing power has led tech companies to assemble clusters of thousands of chips to meet the required data processing capabilities. This trend has made the composition of entire server systems increasingly crucial, prompting AMD's acquisition of ZT Systems. AMD's stock rose nearly 3% in pre-market trading.

"AI systems are our top strategic priority," stated AMD CEO Lisa Su in an interview with Reuters. The inclusion of ZT Systems' engineers will enable AMD to rapidly test and deploy its latest AI GPUs on a scale demanded by cloud computing giants like Microsoft, according to Su.

"The primary benefit (ZT Systems) brings to the company is increased GPU sales," Su explained. AMD intends to divest its server manufacturing operations once the deal is finalized, as it does not plan to compete with entities like Super Micro Computer, Su added. AMD has not yet engaged in discussions with potential buyers.

ZT Systems CEO Frank Zhang will join AMD and report to AMD's data center head, Forrest Norrod. ZT Systems, a privately held company with approximately 2,500 employees, will see AMD retain about 1,000 engineers. ZT Systems currently generates annual revenue of roughly $10 billion, as disclosed by Su.

The transaction is anticipated to close in the first half of 2025, with an additional 12 to 18 months expected to sell the manufacturing business. Nvidia CEO Jensen Huang highlighted at the company's developer conference in March that the former chip designer now offers complete data centers or individual components for building them. This year, analysts predict Nvidia will earn $105.9 billion from its data center segment, encompassing chips and other AI hardware. Su recently mentioned that AMD anticipates generating around $4.5 billion in AI chip revenue this year, with customers including Microsoft and Meta Platforms.

AMD expects ZT Systems to enhance the company's adjusted financial performance by the end of 2025.