A super microcomputer just changed the game. Here’s what you need to know.

As earnings season showed, large companies continue to invest heavily in AI. But one problem is the massive electricity consumption of these power-hungry AI servers. And with even more powerful AI chips coming next year, this problem is only going to get worse.

To alleviate the massive power demands of AI, data center operators are just beginning to adopt direct liquid cooling (DLC) for AI server racks, as opposed to the traditional air-cooled racks used in the vast majority of today’s data centers.

Liquid-cooled data centers only accounted for about 1% of the market at the start of this year, but they are now poised to take off, potentially causing a major disruption in the growing AI server sector. With its long history of leading in new energy-efficient technologies, it’s no surprise that Super microcomputer (NASDAQ: SMCI) is positioning itself to dominate this industrial disruption.

From 1% to 15% in the blink of an eye

Until now, liquid cooling has accounted for only 1% of the data center market because it traditionally takes a long time to deploy, is more expensive, and leaks can cause component failure. Additionally, managing liquid cooling systems requires a different type of expertise than air-cooled systems.

However, it seems that Supermicro has managed to crack some sort of code by deploying liquid-cooled racks on a large scale. And that could be a big step forward.

As analysts worried about Supermicro’s decline gross margins Last quarter, the decline could actually be good news for long term investors. According to management, since launching its new liquid cooling solutions at Computex in early June, demand for its liquid-cooled racks has been stronger than expected. As a result, the company had to pay for expedited shipping of liquid cooling components, which cost more and hurt gross margins last quarter.

However, stronger-than-expected demand isn’t a big deal. On its recent earnings call, Supermicro CEO Charles Liang said the company shipped about 1,000 liquid-cooled racks in June and July, which Liang said represented more than 15% of all new global data center deployments in those two months. Liang also noted that Supermicro expects 25% to 30% of all new data center deployments to use DLC solutions over the next 12 months, with “the majority of deployments coming from Super Micro, we believe.”

Supermicro invests to dominate this market

In the traditional server world, before the advent of AI, Supermicro’s premium and custom servers tended to have a relatively small market share in the fragmented enterprise server sector, around 5%. However, Liang believes that Supermicro accounts for “at least” 70-80% of all DLC servers shipped in recent months.

The story continues

While it is unlikely that Supermicro will maintain such a large market share over time, the company is clearly making investments today to maintain a leading market share in the DLC space.

This could shake up the enterprise server industry, given that the DLC is very…