Soaring demand for servers is surprising even the most optimistic AI hardware providers. In December, Micron (MU 1.13%) boosted its outlook for 2025 server unit growth from 10% to a high teens percentage. The update was notable for both the scale of the increase as well as the fact that it came so late in the year. Looking ahead to 2026, Micron sees strong demand growth continuing.
The value of servers shipped is also increasing, driven by the shift to AI servers that feature expensive GPUs. IDC predicts an 80% rise in global server spending in 2025, and another 24.3% increase in 2026.
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This environment benefits Micron, but it also benefits Intel (INTC +6.44%). Intel leads the market in data center CPUs, and although it has been shedding market share to AMD for years, the CPU giant is now struggling to keep up with demand as hyperscalers ramp up orders.
A memory chip shortage for the ages
Memory chips largely act like a commodity, so during times of undersupply, prices can rise dramatically. That's exactly what's happening right now, and increased demand for servers will only push prices up even higher.
Micron, along with other memory chip manufacturers, have been shifting production to high-bandwidth memory chips used in AI accelerators. This has reduced the supply of standard DRAM chips, which are still necessary for servers. "...in the medium term, we are only able to meet about 50% to two-thirds of our demand from several key customers," said Micron CEO Sanjay Mehrotra during the most recent earnings call.
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Key Data Points
Micron is boosting its 2026 capital spending, but building memory chip facilities can take years. The first of two new factories in Idaho is scheduled to begin producing wafers around mid-2027, with the second expected to be operational by 2028. Meanwhile, a planned factory in New York is not expected to enter production until 2030.
To put it simply, meaningful supply growth is unlikely to occur in 2026. Micron will sell every memory chip it can produce, and prices are likely to continue rising until either supply catches up or demand moderates. For the time being, Micron finds itself in the best-case scenario.
Micron's revenue surged 57 year over year in the first quarter of fiscal 2026, and net income nearly tripled. While Micron's production capacity is a major constraint, strong pricing driven by increasing demand for AI accelerators and servers will likely drive another year of strong revenue and earnings growth in 2026.
CPUs are still critical in the age of AI
As the AI boom got underway, data center spending shifted from standard components, such as CPUs, to more expensive AI accelerators. Old CPUs weren't being upgraded as often as capital was funneled toward expanding AI computing capacity.
This situation created a major headwind for Intel, in addition to market share losses to AMD. However, the demand picture for server CPUs appears to be improving. At the Barclays Global Technology Conference in December, Intel noted that demand for server CPUs has been surprisingly strong. Intel was already shifting manufacturing capacity from PC CPUs to server CPUs, but the company still expects to not have enough supply to meet demand in early 2026.
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Key Data Points
There are a few reasons why the demand for server CPUs is increasing. First, hyperscalers are playing catch-up to a degree, replacing servers powered by old, inefficient CPUs with newer models. AI servers are energy-intensive, so more efficient components can significantly reduce the total cost of ownership.
Second, CPUs have a role to play in certain AI workloads. Retrieval-augmented generation, which connects large-language models to external data sources to improve results without additional fine-tuning, is one example. Intel's latest server CPUs can handle aspects of the RAG pipeline thanks to their integrated AI processing power.
Intel's latest generation of server CPUs is manufactured on the Intel 3 process, and its next-generation chips, scheduled to launch in 2026, will use the Intel 18A process. As these processes scale up, Intel will have more manufacturing capacity to meet surging demand for server CPUs.
Intel's data center and AI segment saw a slight decline in revenue in the third quarter, but a rebound could be on the horizon as Intel prioritizes server CPU production. While it's hard to predict how long the server boom will last, given talk of an AI bubble brewing, Micron and Intel will benefit in 2026 from strong demand.
