Advanced Micro Devices (AMD +11.44%) has long been a top performer on the stock market. The chip stock has steadily taken share from Intel in the central processing unit (CPU) market, and it also has a strong presence in the gaming segment with its graphics processing units (GPUs).
Over the past decade, the stock is up more than 3,000%, driven in part by the pandemic, and more recently, the AI boom.
However, AMD has a tough task ahead of it. It needs to keep pace with AI chip leader Nvidia if it's going to live up to the high investor expectations for the stock. AMD is starting to show evidence of that, however, as data center revenue was up 115% in the second quarter to $2.8 billion, a new record.
Now, AMD just beefed up its position in artificial intelligence by acquiring ZT Systems for $4.9 billion.
Image source: Getty Images.
What is ZT Systems?
ZT Systems is a leading provider of general-purpose compute infrastructure for the top cloud infrastructure companies like Amazon Web Services and Microsoft Azure. AMD expects those AI systems to complement its own chip and software capabilities.
AMD also plans to sell ZT Systems' manufacturing business, continuing its fabless approach to semiconductors. The acquisition is expected to enhance AMD AI training and inferencing services, and ZT Systems' cloud services will allow AMD to deploy its AI infrastructure at scale.
AMD seems to be planning more acquisitions as it builds a comprehensive suite of AI tools. The company expects the acquisition to be accretive to adjusted earnings by the end of 2025.
Buying the server maker will help AMD vertically integrate downstream, selling rack and server systems that customers want to buy rather than just the semiconductor components. Increasingly, companies are competing in server systems for cloud infrastructure companies and other buyers, and ZT Systems should give AMD a key asset as it looks to accelerate its growth in AI.
AMD CEO Lisa Su said that the acquisition will allow the company to more quickly deploy its new AI GPUs at the scale that buyers like Microsoft demand. Su added that "AI systems are our number one strategic priority" in an interview with Reuters.
NASDAQ: AMD
Key Data Points
AMD stakes its claim in the GPU market
Nvidia still dominates the data center GPU market, and it's likely to remain that way for the foreseeable future.
However, GPUs aren't a winner-take-all market, even if Nvidia's leadership will be hard to break. As the No. 2 player, AMD has some things working in its favor. There is still a significant shortage of data center GPUs as companies like Microsoft, Meta Platforms, and Alphabet race to build AI infrastructure, so there's plenty of demand for the components. That shortage could be exacerbated by the recent delay in the Blackwell platform.
Additionally, customers are eager to break Nvidia's monopoly in GPUs and bring down prices in the sector. That may take time, but it's in their interest to prop up AMD so that GPU buyers have an alternative.
Is AMD a buy?
AMD's acquisition of ZT Systems comes just weeks after it made another AI acquisition, taking over Silo AI in a deal valued at $665 million. Silo AI's technology helps businesses create large language models, and is one of several AI companies AMD has bought as it builds its own AI assets.
With that strategy and strong momentum in segments like data center and client, which is primarily PCs, AMD is delivering accelerating growth. As the company taps into soaring demand for AI chips, the stock is likely to move higher.
The rally in the stock isn't over.
