On Monday, Advanced Micro Devices, Inc. (NASDAQ:AMD) reaffirmed its Overweight rating and $220.00 price target following the announcement of its acquisition of ZT Systems, a server Original Design Manufacturer (ODM). The acquisition, which is expected to close in the first half of 2025, is seen as a strategic move for AMD, which plans to sell off the manufacturing segment of the acquired business post-deal.
ZT Systems, which reports approximately $10 billion in revenue for the last twelve months, is anticipated to add $150 million in operational expenses to AMD, primarily due to costs associated with design engineers. However, the acquisition is expected to result in minimal revenue increase and a roughly 1.5% dilution in earnings per share (EPS).
The acquisition is strategically positioned to address competitive concerns, particularly in relation to AMD's ability to match the pace with NVIDIA (NASDAQ:NVDA)'s forthcoming next-generation system level rack solution, known as GB200 NVL (Blackwell). While AMD has indicated it does not plan to sell full-system rack solutions, the integration of ZT Systems is aimed at developing system level reference designs.
The reaffirmation of the Overweight rating and the $220 price target comes as AMD continues to navigate the competitive landscape of the semiconductor industry. The company's decision to divest the manufacturing aspect of ZT Systems is aligned with its broader operational strategy and focus on design capabilities.
In other recent news, Advanced Micro Devices (AMD) has announced its plans to acquire server manufacturer ZT Systems for $4.9 billion. This strategic move intends to strengthen AMD's offerings in the artificial intelligence (AI) sector. According to recent analyst notes from Wells Fargo, Deutsche Bank, and Wolfe Research, the acquisition could bolster AMD's server and AI data center capabilities, potentially enhancing its competitive position against rivals like NVIDIA.
The purchase, structured with 75% cash financing and 25% stock, includes a $400 million earnout. AMD intends to divest ZT Systems' manufacturing segment within 12 to 18 months post-acquisition, retaining 1,000 of the company's engineers. The acquisition is expected to be accretive to AMD's non-GAAP earnings per share by the end of fiscal year 2025.
In addition to the ZT Systems acquisition, AMD has recently completed the acquisition of Europe's largest private artificial intelligence laboratory, Silo AI, for approximately $665 million. These recent developments underscore AMD's strategic focus on enhancing its AI capabilities.
On the financial front, AMD reported robust Q2 results, with revenues of $5.835 billion surpassing Street consensus by $110 million. The company's data center segment saw record revenue growth of 115% to $2.8 billion. These earnings and revenue results highlight the company's ongoing efforts to expand in the rapidly evolving AI market.
InvestingPro Insights
Advanced Micro Devices, Inc. (NASDAQ:AMD) has been a topic of interest for investors, especially with its recent strategic acquisition of ZT Systems. In light of this, InvestingPro data provides a snapshot of the company's current financial health. AMD boasts a significant market capitalization of $248.76 billion, which reflects investor confidence in its market position. Despite a high P/E ratio of 182.98, the company's revenue has grown by 6.4% over the last twelve months, indicating a steady increase in its financial performance. Additionally, AMD has experienced a substantial 8.62% return over the last week, further highlighting its dynamic stock performance.
Among the InvestingPro Tips, it's noteworthy that analysts expect net income growth for AMD this year, which could signal a positive outlook for its profitability post-acquisition. However, it's important to consider that 27 analysts have revised their earnings downwards for the upcoming period, which may suggest some caution is warranted. For those seeking more in-depth analysis, InvestingPro offers additional tips on AMD's financial outlook, including insights into its valuation multiples and debt levels.
Investors interested in AMD's position within the semiconductor industry can find further guidance and a total of 16 InvestingPro Tips, including an analysis of the company's volatility and dividend policy, by visiting https://www.investing.com/pro/AMD. With AMD's ongoing efforts to enhance its design capabilities and competitive stance, these insights can be crucial for making informed investment decisions.
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