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Micron recently raised its forecast for server shipments.
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Micron sells both HBM memory for AI chips and standard server DRAM, both of which are in short supply.
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Although capacity constraints are expected to ease later in 2026, Intel is still struggling to meet server CPU demand.
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The surge in demand for servers has surprised even the most optimistic AI hardware providers. December, Micron (NASDAQ:MU) Increases server sales growth forecast for 2025 from 10% to a percentage in the teens. What’s noteworthy about this update is not just the size of the increase, but also that it comes so late in the year. Looking ahead to 2026, Micron expects continued strong growth in demand.
The value of server shipments is also increasing due to the shift to AI servers equipped with expensive GPUs. IDC predicts that global server spending will grow by 80% in 2025 and by another 24.3% in 2026.
This environment is good for Micron, but it’s also good for Intel (NASDAQ: INTC). Intel leads the data center CPU market, although its market share has been declining AMD The CPU giant is struggling to keep up with demand as hyperscalers have been ramping up orders for years.
Memory chips are very much like a commodity, so prices can rise significantly during periods of low supply. That’s exactly what’s happening right now, and the increased demand for servers will only push prices higher.
Micron and other memory chip makers have been shifting production to high-bandwidth memory chips used in artificial intelligence accelerators. This reduces the supply of standard DRAM chips, which are still needed for servers. “…over the medium term, we can only meet about 50% to two-thirds of demand from a few key customers,” Micron CEO Sanjay Mehrotra said on a recent earnings call.
Micron is increasing capital spending through 2026, but building memory chip facilities could take years. The first of two new facilities in Idaho is scheduled to begin producing wafers around mid-2027, with the second expected to be operational in 2028. Meanwhile, the planned New York factory is not expected to enter production until 2030.
In short, meaningful supply growth is unlikely in 2026. Micron will sell all the memory chips it produces, and prices will likely continue to rise until supply catches up or demand slows. For now, Micron finds itself in the best-case scenario.
Micron’s revenue in the first quarter of fiscal year 2026 surged 57% year-on-year, and net profit nearly tripled. While Micron’s production capacity is a major limiting factor, strong pricing driven by growing demand for AI accelerators and servers could fuel another year of strong revenue and earnings growth in 2026.
As the AI craze takes off, data center spending shifts away from standard components like CPUs and toward more expensive AI accelerators. As capital is used to expand artificial intelligence computing power, older CPUs are not getting frequent upgrades.
In addition to AMD losing market share, this situation creates significant headwinds for Intel. However, server CPU demand conditions appear to be improving. At the Barclays Global Technology Conference in December, Intel noted that demand for server CPUs was unexpectedly strong. Intel has shifted manufacturing capabilities from PC CPUs to server CPUs, but the company expects there will still not be enough supply to meet demand in early 2026.
Demand for server CPUs continues to increase for several reasons. First, hyperscalers are catching up to a degree, replacing servers powered by older, less efficient CPUs with newer models. AI servers are energy intensive, so more efficient components can significantly lower the total cost of ownership.
Second, CPUs play an important role in certain AI workloads. Retrieval-augmented generation is an example, which connects large language models to external data sources to improve results without the need for additional fine-tuning. Intel’s latest server CPUs can handle all aspects of the RAG pipeline with their integrated AI processing capabilities.
Intel’s latest generation of server CPUs are manufactured using Intel’s 3rd generation process, and its next-generation chips planned to be launched in 2026 will use Intel’s 18A process. As the scale of these processes increases, Intel will have more manufacturing capabilities to meet the growing demand for server CPUs.
Intel’s Data Center and Artificial Intelligence segment revenue fell slightly in the third quarter, but a rebound may be coming as Intel prioritizes server CPU production. While it’s difficult to predict how long the server boom will last, Micron and Intel will benefit from strong demand in 2026, given that the AI bubble is brewing.
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Timothy Green works at Intel. The Motley Fool has a position and recommends Advanced Micro Devices and Intel. The Motley Fool has a disclosure policy.
2 AI stocks riding the server boom, accelerating faster than anyone expected Originally published by Motley Fool