U.S. chip manufacturers Intel and Advanced Micro Devices (AMD) are reportedly negotiating multi-year agreements for data center central processing units (CPUs) with major server customers in China, according to sources familiar with the negotiations. These developments come as prices for computing hardware continue to escalate.
AI Boom Shifts Demand Focus from GPUs to CPUs
The increased demand generated by the artificial intelligence (AI) sector is driving broader supply commitments across various components, extending beyond specialized AI accelerators. Industry experts indicate that the requirement for supporting server infrastructure has expanded to encompass memory chips, networking equipment, and general server processors. This heightened need has provided suppliers like Intel and AMD with greater negotiating leverage to establish long-term purchase deals.
The agreements being discussed are structured to secure specific purchasing volumes over time but do not typically fix the unit price. While most commitments cover a supply period of approximately one year, sources noted that some customers have engaged in discussions regarding longer contracts spanning two years or more.
Surging Prices and Supply Constraints in China
The situation for server CPUs represents a notable shift compared to the markets for AI accelerators or memory chips, which have been easier to secure. However, tighter supply of CPUs could potentially increase operational costs and slow down technology deployment efforts for Chinese cloud service providers and internet companies that are scaling up their AI services.
Market data confirms significant price inflation within China’s computing sector. Some products have seen month-on-month price increases exceeding 10%, and other CPU items have risen by over 40% in the Chinese market since the beginning of the year.
Broader Market Context
These negotiations underscore a broader trend observed in the memory chip sector, where AI-fueled shortages have prompted buyers globally to commit to longer supply agreements. The demand for computing power is intensifying due to the rapid construction of data center racks, advanced AI computing clusters, and national digital infrastructure throughout China—one of the world’s most substantial server markets.
Industry leaders are responding to this intense competition. Intel CEO Lip-Bu Tan previously informed analysts that demand “continues to run ahead of supply,” specifically citing the Xeon server CPUs. He also pointed to a multi-year contract with Google as one example of several long-term agreements signed by Intel in the first quarter.
AMD, which is slated to report its earnings in early August, has already revised its market projection for server CPUs upwards, estimating the sector will exceed $120 billion by 2030. AMD attributed this robust forecast to strong demand stemming from agentic AI workloads. Despite ongoing U.S. restrictions concerning access to cutting-edge AI GPUs for Chinese buyers, the massive buildout of digital infrastructure continues to intensify competition for processors made by Intel and AMD.
