Deutsche Bank Reiterates Hold Rating on AMD (AMD)
Deutsche Bank analyst Ross Seymore reiterated a Hold rating and $150.00 price target on AMD (NASDAQ: AMD)
The analyst comments "This morning, AMD announced its intention to acquire server systems provider ZT Systems in a $4.9b deal for a combination of 75%/25% cash/stock (inclusive of $400m contingent payment). The primary goal of the deal appears to be the acquihire of 1k scarce systems design engineers to augment AMD's existing suite of component solutions (GPU/accelerator, CPU, networking, and software) and further accelerate AMD's penetration of system- and rack-level AI Data Center compute solutions. While ZT achieved ~$10b in LTM revenues, AMD intends to divest the manufacturing side of ZT's business (the vast majority of those revenues) 12 to 18 months post deal close. The divestiture of this business should help to offset the purchase price ($4.9b headline, $4.5b pre-earnouts), with revenue synergies on the design side being the key driver of potential earnings accretion going forward. The deal is expected to close in 1H25, and be accretive to EPS exiting 2025. DB Take: From racks to riches? We view the acquisition of ZT Systems as a necessary step to bridging the gap between AMD & key competitor NVDA's ability to fully service Cloud customer AI needs at the rack-scale and data center-scale level. Strategically, the addition of ~1k systems engineers will help to beef up the competitiveness of its “MI” family GPU roadmap, thereby (hopefully) accelerating AMD's market share penetration. Financially, the $4.9b headline price will likely be offset by the eventual divestiture of ZT's ~$10b rev manufacturing business, a business which we estimate could generate a sale price of ~$3-4b, subject to certain EBITDA growth assumptions. All told, we commend the strategic merits of this deal (boosting AMD’s systems capabilities to better compete with NVDA), with the financial costs (+$150m to opex (+2% vs DB 2026E), and likely ~$1-2b net stock/cash), being minimal should the desired acceleration MI-family revenue growth occur in 2026+. We look forward to discussing the technological details of this deal when we host AMD CTO Mark Papermaster at the DB Tech Conference on August 28th."
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Shares of AMD closed at $148.56 yesterday.