By Max A. Cherney

(Reuters) – AMD said on Monday it plans to acquire server maker ZT Systems for $4.9 billion, as the company aims to expand its portfolio of chips and hardware for artificial intelligence and compete with Nvidia.

AMD plans to pay 75 percent of the ZT Systems acquisition with cash and the rest with stock. The company had $5.34 billion in cash and short-term investments in the second quarter.

The computing power requirements for AI have required technology companies to connect thousands of chips together in clusters to achieve the required data processing power. By stringing together the huge number of chips, assembling entire server systems has become increasingly important, which is why AMD is acquiring ZT Systems.

AMD shares rose nearly 3 percent in premarket trading.

“AI systems are our number one strategic priority,” AMD CEO Lisa Su said in an interview with Reuters.

By hiring ZT Systems engineers, AMD will be able to test its latest artificial intelligence graphics processing units (GPUs) more quickly and bring them to market at the scale required by cloud computing giants like Microsoft, Su said.

“ZT Systems increases the value of the company primarily by selling more GPUs,” said Su.

AMD plans to dismantle its server manufacturing business and sell it once the deal is completed because the company does not plan to compete with companies like Super Micro Computer, Su said.

AMD has not yet held talks with potential buyers.

ZT Systems CEO Frank Zhang will join AMD and report to AMD Data Center Director Forrest Norrod.

Privately held ZT Systems employs about 2,500 people, of whom AMD plans to hire about 1,000 engineers. ZT Systems currently has annual revenue of about $10 billion, Su said.

Executives expect the deal to close in the first half of 2025 and expect it to take an additional 12 to 18 months to sell the manufacturing business.

Nvidia CEO Jensen Huang said at the company’s developer conference in March that the one-time chip designer now designs and sells entire data centers or the individual components needed to build one. This year, analysts expect the company to generate $105.9 billion from its data center segment, which includes chips and other AI hardware.

Su said last month that the company expects AI chip sales to be about $4.5 billion this year. The company’s customers include Microsoft and Meta Platforms.

AMD expects ZT Systems to contribute to the company’s adjusted financial performance through the end of 2025.

(Reporting by Max A. Cherney in San Francisco; Editing by Chris Reese)