AMD buys AI equipment maker for nearly $5 billion, escalating battle with Nvidia

The deal, among AMD’s largest, is part of a push to offer a broader menu of chips, software and system designs to big data-center customers such as Microsoft and Facebook owner Meta Platforms, promising better performance through tight linkages between those products.

Secaucus, N.J.-based ZT Systems, which isn’t publicly traded, was founded in 1994. It designs and makes servers, server racks and other infrastructure that house and connect chips in the giant data centers that power artificial-intelligence systems such as ChatGPT.

ZT has more than $10 billion of annual sales, AMD Chief Executive Lisa Su said in an interview—nearly half the $22.7 billion in revenue her company reported last year. However, AMD plans to sell ZT’s manufacturing business after the acquisition is complete, keeping its system-design business.

Su said ZT’s main value for her company is in offering customers more hands-on assistance in setting up huge data centers where clusters of chips train up AI systems.

“What it allows me to say to them is let me help you build your next training cluster, and tell me what’s important to you," Su said. “I now have a very large design team that can help you do that."

The deal could bolster AMD’s competitive position against Nvidia, which also has added aggressively to its data-center offerings in recent years. Nvidia, for example, bought networking company Mellanox in 2020 for nearly $7 billion, bringing in supercomputing-grade data transfer capabilities that have helped it maintain its edge during the AI boom. It also increasingly has focused on designs for servers and data centers that its chips go into.

AMD has made other moves in recent years to build up its data-center chops, including its acquisition of chip maker Xilinx in 2022 in an all-stock deal valued at nearly $50 billion at closing. Also in 2022, AMD bought Pensando Systems, a data-center chip and networking startup, for $1.9 billion.

While Nvidia is by far the chip industry’s prime beneficiary of the AI boom, AMD has been making inroads. Su last month raised her forecast for the company’s AI chip sales to $4.5 billion this year after reporting quarterly results ahead of analysts’ expectations. She had forecast $3.5 billion of sales in January.

AMD valued the cash-and-stock deal for ZT at $4.9 billion, including a contingent payment of up to $400 million based on certain milestones after it closes. AMD said the deal is expected to close in the first half of next year, subject to regulatory approvals, and that ZT Chief Executive Frank Zhang will stay on after the acquisition. Zhang said in a statement that joining AMD will help ZT “play an even larger role designing the AI infrastructure that is defining the future of computing."

The ZT deal is one of AMD’s biggest, after the Xilinx acquisition and its $5.4 billion acquisition of ATI Technologies in 2006.

AMD announced a much smaller AI-related deal last month, the approximately $665 million purchase of Silo AI, a Finnish company that helps customers integrate artificial intelligence into their products and operations.

Write to Asa Fitch at asa.fitch@wsj.com