Big companies are continuing to invest heavily in AI during this earnings season, but the issue of high electricity consumption by AI servers remains a challenge. With more powerful AI chips on the horizon, this problem is expected to worsen.
To address the significant power needs of AI, data center operators are beginning to embrace direct liquid cooling (DLC) for AI server racks instead of the traditional air-cooled racks commonly used. While liquid-cooled data centers only represented about 1% of the market earlier this year, they are now poised for significant growth, potentially causing a shake-up in the rapidly expanding AI server industry.
Leading the charge in this industry disruption is Super Micro Computer (NASDAQ: SMCI), known for its history of pioneering energy-efficient technologies.
From 1% to 15% in the blink of an eye
Liquid cooling has historically made up a small portion of the data center market due to deployment time, costs, and potential leaks. However, Supermicro seems to have found a way to deploy liquid-cooled racks at scale, leading to increased demand for its solutions.
Despite a decline in gross margins last quarter, Supermicro’s introduction of liquid-cooled solutions at Computex in June has resulted in strong demand. The company shipped about 1,000 liquid-cooled racks in June and July, accounting for over 15% of global data center deployments during that period.
Supermicro is investing to dominate this market
While Supermicro previously held a modest market share in traditional servers, it now aims to capture a significant portion of the DLC server market. The company’s investments in DLC could potentially lead to a substantial increase in revenue, with projections of $26 billion to $30 billion over the next year.
Why Supermicro isn’t charging more
Despite the advantages of DLC, such as lower power consumption and improved performance, Supermicro is not raising prices significantly. The company’s gross margins fell last quarter due to expedited shipping costs but are expected to return to normal levels by the end of the year.
By offering DLC solutions at competitive prices, Supermicro aims to disrupt the industry and attract more customers. This strategy could lead to increased overall spending on AI servers and potentially expand DLC deployment beyond specialized data centers.
Additionally, Supermicro’s upcoming data center building block solution (DCBBS) could generate recurring revenue from maintenance and software services attached to deployments.
While some investors may desire immediate profits, Supermicro’s focus on leading in direct liquid cooling for AI data centers could prove to be a game-changer in the long run.
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