Advanced Microdevices Inc. AMD has captured the market's attention with its latest strategic move: the acquisition of ZT Systems, a private company known for its expertise in IT infrastructure.
Wall Street analysts have had mixed reactions to AMD's goal of beefing up its AI systems. Here's what experts have to say about the $4.9 billion deal and its implications for AMD's future.
JPMorgan on AMD stock: Narrowing the gap with Nvidia
JPMorgan analyst Harlan Sur maintains a Neutral rating on AMD with a $180 price target.
Sur sees the acquisition as a positive step for AMD, particularly in improving its AI infrastructure. “Overall, we believe this is a step in the right direction for AMD and should help potentially close the gap between Nvidia Corporation NVDA in the coming years,” says Sur.
The acquisition of ZT Systems, a designer and manufacturer of computing infrastructure for hyperscalers and computing OEMs, is expected to synchronize AMD's next-generation GPU introduction schedules with customer computing systems.
Sur highlights that “ZT Systems’ strong development team” will allow AMD to “develop innovative connectivity and networking solutions (UALink/Infinity network switching solutions) over copper/optics to potentially further reduce power consumption and increase performance on its next-generation rack-scale reference platforms.”
Oppenheimer on AMD stock: cautious optimism amid competition
Oppenheimer analyst Rick Schafer maintains a Perform rating on AMD, without providing a specific price target.
Schafer acknowledges the strategic intent behind the acquisition, but remains cautious. “We recognize AMD's measured approach to filling AI platform 'gaps,' but see a long road ahead against NVDA, the 400-pound entrenched AI behemoth,” Schafer said.
The $4.9 billion acquisition, split 75/25 between cash and stock, is expected to close in the first half of 2025. Schafer notes that “ZT complements AMD’s silicon/software with system-level solutions” and that management expects the deal to be “dilutive to 2025 earnings per share, but expects to exit the year with accretive earnings.”
Despite this, Schafer remains concerned about AMD's position relative to its competitors, saying: “We remain cautious about AMD's ability to deliver a profitable long-term business model as the second horse in a steadily declining PC market.”
Read also: AMD bets big on AI with $4.9 billion deal with ZT Systems: Goldman Sachs highlights '1,000 engineers' driving competitive advantage
Stifel on AMD stock: long-term growth potential
Stifel analyst Ruben Roy rates AMD a buy with a $200 price target.
Roy is optimistic about the acquisition, noting that it “adds AI systems expertise to AMD's computing silicon and growing software portfolio with the addition of 1,000 engineers.”
Roy sees the acquisition as the next logical step for AMD in its efforts to expand AI capabilities and accelerate the adoption of rack-scale systems with cloud service providers. He acknowledges the challenges ahead, particularly in relation to Nvidia, but believes AMD is well positioned to continue its momentum in the data center and enterprise markets.
Roy concludes: “Despite near-term demand volatility, we expect share gains to drive well above-market growth, and we expect gross and operating margin expansion to continue.”
Truist Securities on AMD stock: Filling the gaps but not catching up
Truist Securities analyst William Stein reiterates a Hold rating on AMD, with an unchanged price target of $156.
Stein sees the acquisition of ZT Systems as a move to “plug a hole” in AMD’s offering, but warns that it “doesn’t level the playing field with NVDA.”
Stein notes that while the acquisition offers AMD a path to deliver system-level designs similar to Nvidia’s capabilities, the latter’s advantage in software remains significant. “We note AMD’s progress in DC/AI, especially compared to Intel (INTC, Hold), but we still favor NVDA over the others in this DC/AI group,” Stein explains.
AMD’s acquisition of ZT Systems has drawn a range of opinions from analysts, reflecting both optimism and caution. While the deal could help AMD make inroads into the artificial intelligence and computing infrastructure space, the company still faces significant challenges in overtaking competitors like Nvidia.
As AMD continues to navigate this competitive landscape, the success of this acquisition will be closely watched by investors and analysts alike.
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Photo courtesy of AMD.
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