Advanced Micro Devices (AMD) is set to bolster its data center AI presence through the acquisition of ZT Systems for approximately $4.9 billion in cash and stock. The deal includes a potential additional payment of up to $400 million post-closure.
Expected to be finalized in the first half of 2025, this move will broaden AMD’s data center AI capabilities. ZT Systems currently caters to major hyperscalers with its AI and general-purpose compute infrastructure solutions.
This strategic acquisition will enable AMD to provide optimized rack-scale solutions in the data center AI accelerator market, projected to reach around $400 billion by 2027.
Foreseeing a non-GAAP accretive transaction by the end of 2025, AMD is stepping into a new era of AI innovation and growth.
AMD’s Strong Data Center Performance
AMD’s stock has surged over 37% since the second quarter of 2024, outshining the broader Computer & Technology sector by 8.5%. This rise is propelled by the exceptional performance of AMD’s Data Center segment, with revenues soaring 114.5% year over year, hitting $2.83 billion in Q2 2024.
AMD’s Competitive Stance in the AI Market
The acquisition of ZT Systems adds to AMD’s string of AI-related purchases, including the recent Silo AI procurement. These strategic moves aim to bridge the technological gap with industry giant NVIDIA, intensifying the competition in the race for AI dominance.
Market Dynamics and Macroeconomic Challenges
With the AI space witnessing robust growth and heavy investment by tech titans like Microsoft and Google, AMD stands poised to carve out a substantial market share. However, challenges loom large with the looming uncertainties surrounding the upcoming Presidential elections and the competitive pressure from NVIDIA.
Estimates and Projection Trends
As AMD forecasts third-quarter 2024 revenues around $6.7 billion, a 16% year-over-year growth trajectory is anticipated. Amidst estimate revisions and market fluctuations, AMD’s earnings per share are expected to exhibit significant year-over-year growth, while facing some downward pressure in the short term.
Valuation and Future Prospects
AMD’s stock is currently trading at an elevated valuation, reflecting the company’s growth potential. While the near prospects might seem dim with challenges in certain segments, the long-term growth story of AMD, fueled by acquisitions like ZT Systems, remains compelling for investors.
With a Zacks Rank #3 (Hold), AMD presents a cautiously optimistic investment proposition. For investors holding the stock, the long-term outlook appears promising amidst the evolving AI landscape.