Advanced Micro Devices (AMD) has announced plans to acquire cloud computing solutions firm ZT Systems for $4.9 billion, in a bold move to bolster its artificial intelligence (AI) capabilities and compete more effectively against rivals like Nvidia.

The Santa Clara, California-based semiconductor maker said on Monday that the acquisition will complement its existing silicon and software capabilities, accelerating the large-scale deployment of AI infrastructure. AMD chair and chief executive officer Lisa Su described the deal as "the next major step in our long-term AI strategy to deliver leadership training and inferencing solutions that can be rapidly deployed at scale across cloud and enterprise customers".

In recent months, AMD has invested heavily in expanding its AI ecosystem. The company reports spending over $1 billion in the past year to strengthen its AI software capabilities, in addition to ongoing research and development efforts. Su emphasised the strategic importance of the acquisition, telling Reuters that AI systems are now AMD's "number one strategic priority".

ZT Systems, headquartered in Secaucus, New Jersey, is a leading provider of AI infrastructure to hyperscale computing companies. This expertise will be crucial for AMD as it seeks to produce powerful AI chips at scale, competing with established players like Nvidia in the rapidly growing AI hardware market.

Frank Zhang, chief executive officer of ZT Systems, expressed enthusiasm about the merger: "We are excited to join AMD and together play an even larger role designing the AI infrastructure that is defining the future of computing". Following the completion of the acquisition, Zhang will lead the manufacturing business, while ZT Systems president Doug Huang will oversee design and customer enablement teams.

The deal, which has been unanimously approved by AMD's board of directors, is expected to close in the first half of 2025, subject to regulatory approvals and other closing conditions. AMD anticipates the acquisition could begin to generate profits by the end of 2025.

Investors reacted positively to the news, with AMD's stock rising 2 per cent in pre-market trading on Monday following the announcement.

This acquisition marks AMD's latest strategic move in its quest to compete with more established AI chipmakers. In April, the company unveiled new processors for AI-enabled laptops and desktops, aiming to catch up with rivals Nvidia and Intel, which had already designed AI-capable chips for personal computers.

The AI chip market has become increasingly competitive, with both AMD and Nvidia relying on Taiwan Semiconductor Manufacturing Company (TSMC) for chip production. TSMC is estimated to produce about 90 per cent of the world's advanced chips.

AMD plans to finance the acquisition with a mix of cash and stock, with 75 per cent of the $4.9 billion price tag to be paid in cash. The company reported $5.34 billion in cash and short-term investments as of the second quarter of this year.

As part of the deal, AMD intends to divest ZT Systems' manufacturing business, seeking a strategic partner to acquire this division. The company expects this process to take an additional 12 to 18 months following the closure of the main acquisition.

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