The demand for traditional computer servers is declining as technology buyers allocate more of their budget towards artificial intelligence (AI) projects. According to Susquehanna analyst Mehdi Hosseini, PC server shipments are expected to disappoint in the September quarter. Hosseini notes that the slower recovery in server shipments can be attributed to the growing popularity of Generative AI and the declining utilization of traditional servers.
Current projections indicate that third-quarter server shipments will only increase by 3% compared to the previous quarter, falling significantly short of the previous estimate of a 10% increase. Meanwhile, traditional servers are expected to see a 20% year-over-year decline in the quarter, while AI servers are projected to have a 23% year-over-year increase.
Leading server sellers such as Dell Technologies and Hewlett Packard Enterprise are feeling the impact of this trend. It is becoming increasingly clear that the rise in interest in AI is diverting spending away from other areas. Key figures in the chip industry and Wall Street have indicated that customers are prioritizing AI projects more than ever before.
Mark Liu, Chairman of Taiwan Semiconductor Manufacturing, revealed that AI-related demand was affecting sales of traditional server chips. This sentiment was supported by Piper Sandler's survey of corporate technology buyers, which identified generative AI as the top emerging technology trend for the next three years. The survey further revealed that 75% of Chief Information Officers (CIOs) are either testing or implementing AI projects.
As a result, server makers are expected to face increasing budget pressures in the coming months. The predictions made by Piper Sandler seem to be unfolding before our eyes.
