M&A News: AMD Will Pay $1.6B to Keep ZT Systems’ Engineers and Take on Nvidia (NVDA)

Chipmaker Advanced Micro Devices (AMD) is selling the manufacturing part of ZT Systems, a company that builds data center infrastructure, for $3 billion. At the same time, AMD is keeping ZT’s 1,200-person engineering team in order to help it compete more effectively with Nvidia (NVDA), according to Citi Research. Originally, AMD planned to buy ZT Systems for $4.6 billion, but later chose to keep just the engineering side of the business and sell the rest. Interestingly, 4.5-star Citi analyst Christopher Danely said that AMD is paying about $1.6 billion to keep the engineers, which comes out to around $1.33 million per person.

However, these engineers have a lot of experience in building data centers, and AMD believes this will help them deliver products faster and better serve large cloud companies. It is worth noting that AMD competes with Nvidia and Intel (INTC) in making high-end chips for AI data centers and still gets 30% of its revenue from the PC market. By keeping the engineers and selling the rest, AMD hopes to improve its position in the AI space without taking on the extra cost of managing a manufacturing business.

In addition, the manufacturing part of ZT is being sold to Sanmina (SANM), and the deal should close by the end of 2025. The sale includes $2.55 billion in cash and stock, plus up to $450 million in future payments over three years. As part of the deal, Sanmina will become AMD’s go-to partner for launching new cloud and AI products. Nevertheless, Citi kept its Neutral rating on AMD and held its $100 price target after the news.

Is AMD a Buy, Sell, or Hold?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on AMD stock based on 22 Buys, nine Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average AMD price target of $126.55 per share implies 11.4% upside potential.

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