diff --git a/packages/next/src/generators/application/lib/create-application-files.ts b/packages/next/src/generators/application/lib/create-application-files.ts
index d70728da10ce52..ae9fe71e7e1410 100644
--- a/packages/next/src/generators/application/lib/create-application-files.ts
+++ b/packages/next/src/generators/application/lib/create-application-files.ts
@@ -63,6 +63,10 @@ export function createApplicationFiles(host: Tree, options: NormalizedSchema) {
 
       let { extends: _, ...updatedJson } = json;
 
+      // Don't generate the `paths` object or else workspace libs will not work later.
+      // It'll be generated as needed when a lib is first added.
+      delete json.compilerOptions.paths;
+
       updatedJson = {
         ...updateJson,
         compilerOptions: {
diff --git a/packages/next/src/generators/library/library.spec.ts b/packages/next/src/generators/library/library.spec.ts
index 5417ebf7642fcf..e74c0b9d3d22b2 100644
--- a/packages/next/src/generators/library/library.spec.ts
+++ b/packages/next/src/generators/library/library.spec.ts
@@ -152,14 +152,14 @@ describe('next library', () => {
     expect(appTree.read('my-lib/src/index.ts', 'utf-8')).toContain(
       'React client components'
     );
-    expect(appTree.read('my-lib/src/server.ts', 'utf-8')).toContain(
+    expect(appTree.read('my-lib/src/server.tsx', 'utf-8')).toContain(
       'React server components'
     );
     expect(
       readJson(appTree, 'tsconfig.base.json').compilerOptions.paths
     ).toMatchObject({
       '@proj/my-lib': ['my-lib/src/index.ts'],
-      '@proj/my-lib/server': ['my-lib/src/server.ts'],
+      '@proj/my-lib/server': ['my-lib/src/server.tsx'],
     });
   });
 });
diff --git a/packages/next/src/generators/library/library.ts b/packages/next/src/generators/library/library.ts
index c548ee0d9f705e..f616600ca72566 100644
--- a/packages/next/src/generators/library/library.ts
+++ b/packages/next/src/generators/library/library.ts
@@ -46,15 +46,20 @@ export async function libraryGenerator(host: Tree, rawOptions: Schema) {
   const serverEntryPath = joinPathFragments(
     options.projectRoot,
     './src',
-    'server.' + (options.js ? 'js' : 'ts')
+    'server.' + (options.js ? 'js' : 'tsx')
   );
   host.write(
     joinPathFragments(
       options.projectRoot,
       'src',
-      `server.${options.js ? 'js' : 'ts'}`
+      `server.${options.js ? 'js' : 'tsx'}`
     ),
-    `// Use this file to export React server components\n`
+    `// Use this file to export React server components
+export async function MyServerComponent() {
+  // Server components can perform async operations
+  // e.g const response = await fetch('...');
+  return <h1>Hello Server</h1> 
+}`
   );
   addTsConfigPath(host, `${options.importPath}/server`, [serverEntryPath]);
 
diff --git a/packages/react/src/generators/library/library.ts b/packages/react/src/generators/library/library.ts
index ab36bb87002403..8da30b7efbdf3b 100644
--- a/packages/react/src/generators/library/library.ts
+++ b/packages/react/src/generators/library/library.ts
@@ -43,7 +43,7 @@ export async function libraryGenerator(host: Tree, schema: Schema) {
     ...options,
     e2eTestRunner: 'none',
     skipFormat: true,
-    skipBabelConfig: options.bundler === 'vite',
+    skipBabelConfig: options.bundler === 'vite' || options.compiler === 'swc',
     skipHelperLibs: options.bundler === 'vite',
   });
   tasks.push(initTask);