AI servers increase revenue, but margins that are far lower than traditional servers’ servers’ sales are unpredictable.
The high-performance computing market is a space where it is difficult for manufacturers to make profits, and this is true even as demand for AI servers rises rapidly.
In the new Deep Dive, the next platform explored the economics faced by server manufacturers such as Dell, Hewlett Packard Enterprise, and Lenovo.
The site reports that AI server transactions have increased Dell’s total revenue and some profits, but that overall profitability per amount earned is also declining as AI server profit margins are much lower than traditional server and storage profits.
Unpredictable AI hardware sales
“We’ve been working hard to get the better of our customers,” said Timothy Prickett Morgan of TNP. AMD has got some margins and eventually Arista Networks and Cisco Systems will also acquire stock in AI Revenue and Profit Pie, but it hasn’t really happened yet. AMD has gotten thin slices of GPU and CPU revenue from AI servers, and Intel has even smaller slices of CPU revenue and profit. That’s about it. ”
Dell reported $2.1 billion in AI server revenue for the fourth quarter of fiscal year 2025, which ended in January, from $2.9 billion in the last quarter, significantly lower than the $3.1 billion recorded in the second quarter. This fluctuation underscores the unpredictable nature of AI hardware sales.
Despite the challenges, Dell said in a call to Wall Street analysts it expects to generate at least $15 billion from AI servers in 2026. The AI server backlog was $4.1 billion at the end of the fourth quarter, but the recent $4.9 billion deal with Xai, reported last month, quickly reached $9 billion.
“AI servers have a total margin on 5% orders. It combines an enterprise server consisting of a large system for running ERP systems and databases, a midrange machine for medium-sized businesses, and a low-capacity box for small businesses, with a crude margin three times higher,” writes Prickett Morgan.
“The networking and storage connected to these systems adds more margins, as well as installation, technical support and funding services. The latter compensates for the fact that it’s not that margin for companies like Dell, HPE, Lenovo and others to build physical servers.”
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