Analysts at Wedbush are “cautiously optimistic” about Advanced Micro Devices Inc (NASDAQ:AMD, ETR:AMD)'s acquisition of ZT Systems, a move they see as both strategic and opportunistic.
The chipmaker on Monday announced it is acquiring ZT Systems in a cash and stock transaction valued at $4.9 billion, its latest investment to boost its AI capabilities.
“AMD’s public rationale for the acquisition is effectively ZT’s expertise (systems and cluster expertise) will allow AMD to bring more complete/advanced systems to market at a faster pace,” the analysts noted.
“This logic resonates with us though we see some potential that there are also explicit future projects that the deal enables given the overlap between key ZT server and AMD GPU customers (e.g. Microsoft).”
In terms of the deal’s impact on the server and AI systems market, analysts see AMD increasing its focus on systems designs in addition to silicon manufacturing.
Such a shift could be seen as limiting the value add provided by systems vendors, in line with the analysts’ view that AI servers' gross margins will continue to remain under pressure.
Analysts believe AMD was arguably able to purchase ZT at a discount amid changing conditions in the original design manufacturer (ODM) market, particularly Foxconn’s increased presence with Nvidia’s server supply chain.
“In turn, the relatively attractive deal price may allow AMD to recoup a meaningful portion of its acquisition cost when it sells ZT's assets,” they wrote.
They also see AMD’s willingness to spend $4 billion on the acquisition as a signal that prospects for the GPU market remain robust.
“As such, we see no reason to shift our constructive opinion on AMD and are reiterating our ‘Outperform’ rating on the stock,” analysts wrote.
They awarded the stock a $200 price target. Shares traded hands at $157 on Tuesday.