(Bloomberg) -- Advanced Micro Devices Inc. agreed to buy server maker ZT Systems in a cash and stock transaction valued at $4.9 billion, adding data center technology that will bolster its efforts to challenge Nvidia Corp.

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ZT Systems, based in Secaucus, New Jersey, will become part of AMD’s Data Center Solutions Business Group, according to a statement Monday. AMD will retain the business’s design and customer teams and look to sell the manufacturing division. The deal price includes a contingent payment of $400 million based on certain milestones.

AMD shares rose 2.5% in premarket trading on Monday after the news.

Closely held ZT has extensive experience making server computers for owners of large data centers — the kind of customers that are pouring billions into new artificial intelligence capabilities.

The acquisition will “significantly strengthen our data center AI systems,” AMD Chief Executive Officer Lisa Su said in the statement.

The company has its sights set on Nvidia, the runaway leader in the market for data center gear needed to support AI computing. AMD is adding software and hardware capabilities that will better match the breadth of Nvidia’s offerings and speed the uptake of its chips.

AMD is the second-biggest provider of the graphics processors that have become so vital to developing AI software. And it’s spent more than $1 billion in the last 12 months to expand its reach in that market. In July, the company agreed to buy Silo AI for $665 million to add a maker of artificial intelligence models.

Santa Clara, California-based AMD is seen as Nvidia’s closest rival in AI processors. Its new MI range of accelerator chips will bring in more than $4.5 billion of new revenue this year, the company has projected. That puts it ahead of all other challengers to Nvidia, but still way behind. Analysts expect Nvidia to generate $100 billion in data center revenue this fiscal year.

Part of Nvidia’s expansion has been fueled by offering chips, networking, servers, software and services, all aimed at making AI use more pervasive in the economy. Under Su’s leadership, AMD is showing a commitment to match that reach.

AMD shares rose less than 1% in New York trading on Friday, leaving the stock little changed in 2024. But gains over recent years have pushed its market value to $240 billion, more than twice that of longtime rival Intel Corp.

(Updates with shares in the third paragraph.)

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AMD (AMD) on Monday said it plans to acquire server maker ZT Systems for $4.9 billion as the company seeks to expand its portfolio of artificial intelligence chips and hardware and battle Nvidia (NVDA).

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

The computing requirements for AI have dictated that tech companies string together thousands of chips in clusters to achieve the necessary amount of data crunching horsepower. Stringing together the vast numbers of chips has meant the makeup of whole server systems has become increasingly important, which is why AMD is acquiring ZT Systems.

AMD's shares climbed nearly 3% in premarket trading.