The semiconductor company acquired an AI infrastructure firm to challenge NVIDIA’s data center dominance.
Advanced Micro Devices (NASDAQ:AMD) stock was up about 3% Monday after the semiconductor firm announced it was buying an AI infrastructure provider to bolster its clouding computing capabilities at data centers.
AMD acquired ZT Systems in a cash and stock deal valued at $4.9 billion. ZT Systems provides the AI infrastructure that supports large hyperscale computing providers; major companies like Microsoft, for example, that require the scale and infrastructure to process massive amounts of cloud computing data at data centers.
NVIDIA (NASDAQ:NVDA), AMD’s chief rival, has dominated in this space, with some analysts estimating that its AI graphics processing units (GPUs) own 98% of the market share at data centers. Data centers have been the primary driver of NVIDIA’s huge revenue gains in recent years.
AMD, which also makes AI GPUs, is far behind in this area, but the acquisition of ZT Systems could help it gain ground.
Accelerating data center growth
ZT Systems cloud computing infrastructure solutions will help cloud and enterprise customers significantly accelerate the use of AMD’s AI infrastructure at scale. AMD Chair and CEO Lisa Su called it the next big step in the company’s long-term AI strategy
“ZT adds world-class systems design and rack-scale solutions expertise that will significantly strengthen our data center AI systems and customer enablement capabilities,” Su said. “This acquisition also builds on the investments we have made to accelerate our AI hardware and software roadmaps.”
In an interview with Reuters, Su explained that the “main way (ZT Systems) is additive to the company is we sell more GPUs.”
Over the past 12 months, AMD has spent more than $1 billion to strengthen the company’s AI software capabilities. Back in April, on the company’s first quarter earnings call, Su said AI represents an unprecedented opportunity for the firm.
“Our priorities for 2024 are very clear: accelerate our data center growth,” Su said on the Q1 call. “While there has been significant growth in AI infrastructure buildouts, we are still in the very early stages of what we believe is going to be a period of sustained growth driven by an insatiable demand for both high-performance AI and general-purpose compute. We have expanded our investments across the company to capture this large growth opportunity.”
In the second quarter, AMD’s data center segment saw revenue increase 115% year over year to a record $2.8 billion. After Q2, the company guided for $4.5 billion in data center GPU revenue in 2024, up from the previous guidance of $4 billion in April and $3.5 billion in January.
Second AI acquisition in a week
The acquisition of ZT Systems comes one week after AMD bought Silo AI, the largest private AI lab in Europe.
The $665 million purchase brings a team of world-class AI scientists and engineers to help AMD develop innovative AI models, platforms and solutions for large enterprise customers. This should complement and support AMD’s efforts to enhance its hyperscale computing capabilities.
The company is coming off a second quarter where it grew revenue by 9% year-over-year and improved its gross margin by 3 percentage points to 49%. Also, its net income rose to $265 million, from $27 million the same quarter a year ago, and it improved its free cash flow and reduced its debt.
AMD stock jumped about 3% on Monday’s news, and AMD stock is up roughly 4% YTD. NVIDIA was also up 3% on Monday.
AMD has a long way to go to catch NVIDIA, but it is a huge and growing market that AMD in which AMD hopes to gain market share.