Microsoft and Meta earnings send positive signals for the AI server supply chain
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Microsoft and Meta earnings send positive signals for the AI server supply chain
J.P. Morgan believes that strong capital expenditures and AI demand from the two major U.S. hyperscale cloud providers will support server supply-chain revenue momentum in 2H26, although the outlook for Windows OEM and PC demand is weak.
- Microsoft's Jun-Q cash capital expenditures were approximately US$36bn, up 110% YoY, and it guided to total capital expenditures above US$50bn for Sep-Q.
- Meta's Jun-Q cash capital expenditures were approximately US$30bn, up 82% YoY. Its 2026 total capital expenditure guidance narrowed to US$130-145bn, implying approximately 90% YoY growth at the midpoint.
- Azure revenue grew 43% YoY in Jun-Q, with Sep-Q guidance accelerating further to 45% YoY, indicating that cloud and AI demand remain strong.
- Server-chain beneficiaries include Wiwynn, Quanta, Hon Hai, as well as component and networking suppliers such as Delta, Jentech, AVC, ASPEED, Lotes, and Accton.
- PC pressure is intensifying: Windows OEM revenue is guided to decline in the low-20% range YoY in Sep-Q and is expected to decline in the high-teens range YoY in FY27.
Report interpretation
Overview
This report provides a read-through analysis of the PC and server supply chains based on Microsoft and Meta's Jun-26 quarterly results. J.P. Morgan points out that the two companies' combined cash capital expenditures increased 32% QoQ and 96% YoY in Jun-Q, while capital expenditures are still expected to rise significantly in the second half, particularly benefiting Asian technology supply chains for AI servers, general-purpose servers, data center networking, power, and liquid cooling. Meanwhile, the PC outlook has weakened due to soft demand, elevated inventories, fading Windows 10 replacement demand, and negative price elasticity.
Core views
The core view is that cloud-service demand driven by AI and ongoing supply constraints will support revenue, shipment, and pricing/margin performance across the server supply chain. Microsoft's accelerating Azure growth and Meta's plans to maximize computing capacity in 2026/2027 both point to a more sustainable capital expenditure trend. The report favors Wiwynn, benefiting from the upcycle in general-purpose servers and the upcoming AWS Trainium 3 cycle; Delta, Jentech, and AVC, benefiting from AI power and liquid cooling; ASPEED and Lotes, benefiting from stronger-than-expected traditional server spending; and Accton, benefiting from data center networking demand and AI networking upgrades. By contrast, the PC/NB ODM chain faces downside risks.
Analysis framework
The report uses an earnings read-through approach, deriving the impact on Asian server, component, networking, and PC supply chains from Microsoft and Meta's cash capital expenditures, total capital expenditure guidance, cloud revenue growth, AI monetization opportunities, supply constraints, and PC OEM revenue guidance.
Methodology notes
Infer upstream hardware supply-chain conditions from cloud-provider earnings and capital expenditure guidance
The report links Microsoft and Meta's Capex, Azure revenue, advertising and AI demand, and capacity-building strategies with revenue momentum among AI server ODMs, general-purpose server, liquid-cooling, power, connector, BMC, and networking equipment suppliers.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Wiwynn Corp (6669.TW)Top server ODM pick
- Strengths
- Benefits from the upcycle in general-purpose servers and the upcoming AWS Trainium 3 cycle.
- Weaknesses
- Sensitive to cloud-provider capital expenditure timing and the progress of AI server projects.
- Comparison
- Listed as the top pick in the server ODM sector.
- Risks
- If hyperscale cloud providers slow capital expenditures, delay projects, or continue to face supply-chain bottlenecks, revenue realization may fall below expectations.
- Quanta Computer Inc.; Hon Hai Precision; Lenovo GroupBeneficiaries of Microsoft's server supply chain
- Strengths
- AI server and general-purpose server demand is supported by Microsoft's rising Capex.
- Weaknesses
- PC/NB-related businesses may be dragged down by declining Windows OEM revenue.
- Comparison
- The AI server chain benefits more than the PC chain.
- Risks
- Weak end-market PC demand, elevated inventories, and changes in customer order mix.
- Delta Electronics; Jentech; Asia Vital ComponentsBeneficiaries of AI power and liquid-cooling components
- Strengths
- Benefit from rising AI server power consumption, increasing liquid-cooling penetration, and data center infrastructure expansion.
- Weaknesses
- Growth depends on the pace of AI server construction and customer adoption.
- Comparison
- Compared with traditional PC components, these companies have stronger long-term AI infrastructure exposure.
- Risks
- Changes in AI server designs, price competition, or fluctuations in capital expenditure timing.
- ASPEED Technology; LotesBeneficiaries of stronger-than-expected traditional server spending
- Strengths
- The report believes both will benefit from continued strength in traditional server spending this year.
- Weaknesses
- Dependent on the sustainability of the traditional server recovery.
- Comparison
- In addition to AI servers, both are exposed to improving general-purpose server demand.
- Risks
- If general-purpose server budgets are crowded out by AI investment, the magnitude of the benefit may weaken.
- AcctonBeneficiary of data center networking and AI networking upgrades
- Strengths
- Can benefit from long-term data center networking demand and an accelerating AI networking upgrade cycle.
- Weaknesses
- Order timing may fluctuate with cloud providers' network architecture updates.
- Comparison
- More directly benefits from AI cluster networking upgrades than ordinary server components.
- Risks
- Customer capital expenditure adjustments, networking equipment competition, and changes in technology roadmaps.
- PC/NB ODM supply chainBearers of pressure from weakening PC demand
- Strengths
- Jun-Q Windows OEM revenue was better than company expectations, partly supported by pre-stocking ahead of component price increases.
- Weaknesses
- The significant declines guided for Windows OEM revenue in Sep-Q and FY27 indicate weak PC end demand, elevated inventories, and fading Windows 10 replacement demand.
- Comparison
- PC/NB ODM conditions are materially weaker than those in the AI server chain.
- Risks
- Negative price elasticity, slower-than-expected inventory reduction, and Taiwanese ODM share shifting to Chinese peers.
Key data
- Combined Jun-Q cash CAPEX of the two hyperscale cloud providers+32% QoQ / +96% YoYCombined figures for Microsoft and Meta.
- Microsoft Jun-Q cash CAPEXApproximately US$36bn, +16% QoQ / +110% YoYApproximately two-thirds was allocated to short-lived assets, primarily GPUs/CPUs.
- Microsoft Sep-Q total CAPEX guidanceAbove US$50bn, more than 43% YoYManagement expects total Capex to continue increasing in FY27.
- Microsoft Azure Jun-Q revenue growth+43% YoYAccelerated from 39% in the previous period; Sep-Q guidance is +45% YoY.
- Microsoft Windows OEM Jun-Q revenue-5% YoYBetter than the company's expectations, but Sep-Q guidance is for a decline in the low-20% range YoY.
- Meta Jun-Q cash CAPEXApproximately US$30bn, +59% QoQ / +82% YoYSlightly below market consensus.
- Meta 2026 total CAPEX guidanceUS$130-145bn, approximately +90% YoY at the midpointNarrowed from the previous US$125-145bn range toward the higher end.
- Meta Sep-Q revenue guidanceUS$61-64bn, +22% YoY at the midpointBroadly in line with market expectations, supported by advertising and agentic AI demand.
Impact & implications
For investment implications, AI server supply-chain revenue momentum should be stronger in 2H26 and the coming quarters. Supply constraints may support higher shipments and create a more favorable pricing and margin environment for component suppliers. Improvements in cloud-provider internal efficiency, core product performance, AI service revenue and user growth, enterprise API demand, and potential computing-capacity sales all support more sustainable future capital expenditures. The PC chain, however, may fall below previous NB ODM shipment expectations due to weakening end demand and inventory pressure.
Risks
- Cloud-provider capital expenditure timing or scale may fall below guidance.
- Uncertainty around AI demand and monetization may lead to more cautious capacity expansion after 2028.
- Supply constraints may limit the realization of server shipments.
- Weakening PC end demand, elevated inventories, and fading Windows 10 replacement demand.
- Negative price elasticity resulting from component price increases may suppress PC sales.
- Taiwanese NB ODMs may continue losing share to Chinese competitors.
What to watch
- The increase in Microsoft FY27 Capex and the actual increase in Sep-Q cash Capex.
- Meta's 2H26 Capex execution progress and 2027 computing-capacity expansion plans.
- Whether Azure growth can continue accelerating in line with the Sep-Q guidance of +45% YoY.
- Whether AI server supply-chain shipments, pricing, and margins improve due to supply constraints.
- The magnitude of the decline in Windows OEM revenue and progress in PC inventory reduction.
- The impact of the AWS Trainium 3 cycle on Wiwynn's orders.