Hardware OEMs and Data Center Infrastructure

Introduction

Data center hardware companies occupy a distinct position within TMT coverage: they sit between the semiconductor companies that supply their components and the hyperscale cloud providers that represent their largest customers. The worldwide server market reached a record $112.4 billion in Q3 2025, representing 61% year-over-year growth, driven almost entirely by demand for AI-accelerated servers containing Nvidia GPUs. Servers with embedded GPUs now represent more than half of total server market revenue, a structural shift that has transformed the competitive dynamics, margin profiles, and financial analysis of hardware OEMs. For TMT bankers, hardware companies generate advisory mandates through M&A consolidation, AI-driven capital investment, and the ongoing transition from commodity hardware sales to recurring revenue models.

The server market has been reshaped by AI demand more dramatically than any other hardware category. Hyperscalers are expected to procure 1.7 million AI servers in 2025, representing $123 billion in spending. Dell Technologies leads the AI server market with 20% share, followed by HPE (15%), Inspur (12%), Lenovo (11%), and Supermicro (9%). The US market is growing fastest, with server revenue up 79% year-over-year in Q3 2025, fueled by a 105% surge in the accelerated server segment.

The strategic response among OEMs is a shift toward recurring revenue. Dell, HPE, and Lenovo are all building as-a-service offerings (Dell APEX, HPE GreenLake) that convert one-time hardware sales into subscription contracts with higher lifetime value and more predictable revenue streams. This transition mirrors the on-premise to cloud shift in software and is valued by the market because recurring revenue commands higher multiples than transactional hardware sales.

Data center networking is a $47 billion market in 2025, with Cisco, Arista Networks, and HPE/Juniper as the dominant vendors. Arista generated $1.48 billion in data center Ethernet switch sales in Q1 2025 (up 26% year-over-year, 21% market share), driven by demand from hyperscalers building AI training clusters that require high-bandwidth, low-latency networking. Nvidia itself has become a major networking vendor (through its Mellanox acquisition), selling InfiniBand interconnects alongside its GPUs and directly competing with traditional networking OEMs.

The data center storage market, valued at approximately $64 billion in 2024, is being transformed by AI workloads that require high-performance flash storage for training data and model checkpoints. Pure Storage (subscription ARR of $1.8 billion, revenue up 16% year-over-year) represents the newer model of storage-as-a-service, while Dell EMC and NetApp maintain dominant positions in traditional enterprise storage. Storage generates higher margins than servers because of proprietary software and data management features that create switching costs.