Sanmina's Strategic ZT Systems Acquisition and Margin Expansion Potential

Sanmina Corporation's $3 billion acquisition of ZT Systems' data center infrastructure manufacturing business marks a pivotal moment in the AI and cloud computing revolution. By integrating ZT's $5–6 billion annual revenue run-rate with its own $7.57 billion fiscal 2024 revenue base, Sanmina is poised to double its scale within three years. This move isn't just about growth—it's about transforming into a high-margin, vertically integrated powerhouse in one of the most dynamic sectors of the global economy.

Strategic Rationale: A Perfect Fit for AI's Next Frontier

ZT Systems brings more than just revenue; it delivers a critical mass of expertise in hyperscaler-grade data center infrastructure. Its advanced liquid cooling capabilities, U.S. and European manufacturing footprint, and 30+ years of systems integration experience align seamlessly with Sanmina's global supply chain and engineering prowess. Together, they can offer end-to-end solutions—from components to fully integrated racks—positioning the combined entity as a one-stop shop for hyperscalers and OEMs racing to deploy AI infrastructure.

AMD's decision to retain ZT's AI systems design business and partner with Sanmina as a preferred manufacturing partner further underscores the strategic synergy. This collaboration ensures that cutting-edge AMD AI chips will be paired with Sanmina's scalable production capabilities, accelerating deployment of next-generation AI clusters. For investors, this partnership signals a defensible moat in an industry where time-to-market and quality are paramount.

Financial Catalysts: Margin Expansion Through Scale and Synergy

Sanmina's current non-GAAP operating margin of 5.7% (Q3 2025) is already at the high end of its 5.4–5.8% guidance range. The ZT acquisition, however, is expected to push this beyond 6% in the long term. How?

1. Revenue Diversification and Growth: ZT's $5–6 billion in annual revenue adds a high-margin, high-growth segment to Sanmina's portfolio. With global data center investments projected to nearly triple to $893 billion by 2028, the combined entity is well-positioned to capture a larger share of this boom.
2. Operational Leverage: The acquisition's $2.5 billion in committed financing from Bank of America ensures Sanmina can scale without overleveraging. Its current net leverage ratio of 0.38x (Q3 2025) and $1.7 billion in liquidity provide a strong foundation for debt management while pursuing margin expansion.
3. Vertical Integration: By reducing reliance on third-party vendors and optimizing end-to-end workflows, Sanmina can cut costs and improve gross margins. The integration of ZT's advanced manufacturing facilities with Sanmina's global footprint is expected to unlock $100+ million in annual cost synergies.

Long-Term Outlook: A High-Margin, Capital-Efficient Play

The acquisition's contingent consideration structure—$450 million tied to three-year performance metrics—aligns with Sanmina's disciplined capital allocation framework. Management has emphasized maintaining a net leverage ratio of 1.0x–2.0x post-acquisition, ensuring flexibility for reinvestment or shareholder returns.

With ZT's build-to-order fulfillment capabilities and Sanmina's firmware engineering expertise, the combined entity can target higher-margin services in AI infrastructure. For example, customized liquid cooling solutions and firmware optimization for hyperscalers could command premium pricing, further widening margins.

Investment Implications

Sanmina's strategic alignment with the AI/data center boom, coupled with its disciplined financial approach, makes it an attractive long-term play. Key risks include integration challenges and regulatory hurdles (the deal is pending approvals), but the company's track record of successful acquisitions and strong balance sheet mitigate these concerns.

For investors seeking exposure to the AI revolution, Sanmina offers a compelling thesis: a proven operator with a clear path to margin expansion, scale, and industry leadership. As global demand for AI infrastructure accelerates, SANM is not just riding the wave—it's building the ship.

Final Take: Buy Sanmina for its strategic positioning, margin expansion potential, and long-term growth in the AI/data center sector. Hold for 12–24 months, with a target price based on 12x post-acquisition non-GAAP EPS.