Western: Imbalance between supply and demand drives up prices of server CPUs, AI reasoning boosts industry demand

Western released a research report stating that according to KeyBanc data, Intel and AMD are planning to increase server CPU prices by 10%-15% to address supply and demand imbalances and ensure stable supply in the future. Due to data center architecture upgrades and replacement of existing server CPUs, global server shipments are expected to achieve a year-on-year growth of over 9% according to TrendForce data. The continuous evolution of generative AI is leading to increasing purchases of AI servers, some of which are encroaching on the purchasing budgets of general servers. At the same time, the general servers purchased earlier by cloud providers are now entering a large-scale replacement cycle. Key points by Western include: Intel and AMD are increasing server CPU prices According to KeyBanc's data, Intel and AMD plan to increase server CPU prices by 10%-15% to address supply and demand imbalances and ensure stable supply in the future. Additionally, by 2026, Intel and AMD's server CPU production capacity is nearly fully pre-sold. General server market is recovering Products like AMD's fifth-generation EPYC "Turin" and Intel's Xeon "Granite Rapids" CPUs have been launched successively, with significant improvements in performance metrics such as core count and memory bandwidth. Due to data center architecture upgrades and replacement of existing server CPUs, global server shipments are expected to achieve a year-on-year growth of over 9% according to TrendForce data. Increase in data center server CPU demand leading to imbalance in supply and demand, driving prices up The continuous evolution of generative AI is leading to increasing purchases of AI servers, which are encroaching on the purchasing budgets of general servers. Additionally, cloud providers who made previous purchases of general servers are now entering a large-scale replacement cycle. Furthermore, cloud providers are advancing architecture upgrades in their data centers, planning to phase out older architecture CPUs and integrate new generation server CPUs into existing rack systems, leading to compensatory investments in the data center field and driving server CPU prices up. Cloud providers increase capital expenditure to meet AI demands, further boosting server CPU demand As models like Gemini3 and GPT-5 iterate and come into use, cloud providers are expected to continue expanding capital expenditure to meet the increasing demand for AI inference capabilities. According to TrendForce data, global AI server shipments in 2026 may see a year-on-year growth of over 20%, with the proportion of AI servers in the total server shipments expected to rise to 17%. Domestic next-generation server CPUs are accelerating deployment in scenarios such as general servers and storage servers Domestic CPUs such as Hygon Information Technology's Hygon 4th generation CPU, Loongson Technology Corporation's 3C6000, and China Greatwall Technology Group's Feiteng S2500 have been shipped in sectors like government, finance, and telecom operators, with stability and compatibility continuously improving. Investment recommendations Western believes that with data center architecture upgrades and the continuous growth in AI inference capabilities, there is expected to be sustained growth in demand. Domestic server CPUs have seen continual performance improvements in recent years, with ongoing enhancements in software compatibility, likely to increase market share further under the dual drivers of demand and policy. Recommendations include focusing on domestic CPU companies such as Loongson Technology Corporation (688047.SS), Hygon Information Technology (688041.SS), and China Greatwall Technology Group (000066.SZ). Risk warnings Lower-than-expected downstream demand; new product launches and commercialization falling short of expectations; macroeconomic conditions below expectations.