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AMD’s $4.9 Billion Acquisition of ZT Systems Faces EU Antitrust Review

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The European Union’s antitrust regulators are set to make a decision by March 12 on U.S. chipmaker AMD’s $4.9 billion acquisition of server manufacturer ZT Systems. AMD announced the acquisition in August 2024, which aims to strengthen its portfolio of artificial intelligence (AI) chips and hardware to better compete with rivals such as Nvidia.

ZT Systems specializes in AI infrastructure, serving some of the world’s largest hyperscale computing companies, including Microsoft and Meta Platforms. The EU’s preliminary review could result in the deal being approved, either with or without conditions. However, if the European Commission has significant concerns, it could initiate a four-month investigation into the deal.

This acquisition is part of AMD’s strategy to expand its presence in the AI sector, where it faces intense competition from Nvidia, which currently dominates the AI chip market.

 

AMD Shares Drop 8% Amid Disappointing AI Chip Revenue and Pressure from Nvidia

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Advanced Micro Devices (AMD) saw its stock plunge by 8% on Wednesday after the company’s AI chip revenue fell short of analysts’ expectations, highlighting its struggle to capture market share from the dominant player, Nvidia. AMD’s fourth-quarter data center revenue, which reflects demand for its AI processors, increased by 69% to $3.9 billion. However, this figure missed the consensus estimate of $4.15 billion.

Despite AMD’s success in gaining ground in the central processing unit (CPU) market, the company continues to lag far behind Nvidia in the graphics processing unit (GPU) sector. According to technology analyst Ben Barringer, while AMD is taking market share from Intel in CPUs, it faces significant challenges in disrupting Nvidia’s established position in the GPU market.

The disappointing results led to a $15 billion loss in AMD’s stock market value, further compounded by an 18% decline in shares last year. While AMD’s stock had surged more than 100% in 2023 amid hopes for its AI-optimized GPUs, Nvidia’s stock has skyrocketed by 171% in 2024. The growing trend of tech giants, including Microsoft and Meta, developing in-house chips to reduce costs may also diminish demand for AMD’s processors.

As Nvidia continues to outperform and custom chips gain popularity, BofA analysts noted that AMD could struggle to make significant inroads in the AI chip market. Additionally, the launch of DeepSeek, a low-cost AI model by Chinese firm DeepSeek, has made investors more cautious about heavy spending on AI chips, further undermining confidence in AMD’s prospects.

At least 22 analysts have lowered their price targets for AMD, with the median target now set at $150, down from $166.5 before the results.

 

AMD Shares Drop as CEO Forecasts Declining Data Center Sales Amid AI Competition

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Shares of Advanced Micro Devices (AMD) plunged around 10% in after-hours trading on Tuesday after the chipmaker provided a disappointing forecast for its data center sales, particularly in the AI market. Despite exceeding quarterly revenue expectations, AMD’s outlook for 2024 failed to reassure investors, who have been anticipating the company’s larger push into AI, an area dominated by Nvidia.

AMD reported fourth-quarter data center revenue of $3.9 billion, missing the analyst consensus estimate of $4.15 billion. This segment is considered a key indicator of AMD’s AI revenue, as it includes sales of processors that compete with Nvidia’s chips. For 2024, the company reported generating over $5 billion in AI chip revenue but projected a 7% decline in data center sales for the current quarter. AMD’s CEO, Lisa Su, did not provide specific projections for AI chip sales but expressed confidence in achieving “tens of billions” in revenue over the coming years.

However, analysts, such as Kinngai Chan from Summit Insight, suggested that AMD’s AI GPU performance was not meeting market expectations. Meanwhile, Nvidia continues to lead the AI chip market with an 80% share, bolstered by its proprietary CUDA software, which remains a significant barrier for AMD to overcome. Competitors like Microsoft and Meta have also been developing their own custom AI chips, further intensifying the competitive landscape.

Despite these challenges, AMD is focusing on collaborations with its customers to create custom AI chips, aiming to close the gap with companies like Marvell and Broadcom. AMD remains optimistic about increasing sales of personal computer chips, as demand for PCs capable of handling generative AI tasks shows signs of recovery after a prolonged slump.

AMD’s forecasted first-quarter revenue of approximately $7.1 billion, slightly above analyst estimates, provided some relief, but the company’s position in the highly competitive AI chip market remains a point of concern for investors.