Surging AI Demand Sparks Chip Supply Crisis
A rising number of tech industry leaders, among them Elon Musk and Tim Cook, are sounding the alarm about a looming global crisis: A shortage of memory chips is starting to impact profits significantly, disrupt corporate strategies, and drive up prices on a wide range of products, including laptops, smartphones, automobiles, and data centers — and the situation is expected to deteriorate further. Since the beginning of 2026, Tesla Inc., Apple Inc., and several other prominent corporations have indicated that the shortage of DRAM, or dynamic random access memory — the essential component of nearly all technology — will limit production. Cook cautioned that it will compress iPhone margins. Micron Technology Inc. referred to the bottleneck as “unprecedented.” Musk addressed the complex nature of the issue when he stated, “Tesla is going to have to build its own memory fabrication plant.” He stated in late January “We’ve got two choices: hit the chip wall or make a fab.” The primary cause of the squeeze is the expansion of AI data centers. Companies such as Alphabet Inc. and OpenAI are acquiring a growing portion of memory chip production — by purchasing millions of Nvidia Corp. AI accelerators equipped with substantial memory allocations — designed to operate their chatbots and various applications. Consumer electronics producers are now contending for a diminishing supply of chips from companies such as Samsung Electronics Co. and Micron. The emerging price spikes are beginning to resemble the hyperinflation experienced during the Weimar Republic. The price of a specific type of DRAM surged by 75 percent from December to January, driving significant price increases during the holiday quarter. A rising trend among retailers and intermediaries involves adjusting their prices on a daily basis. “RAMmageddon” is the term that some individuals employ to characterize what lies ahead.
“We stand at the cusp of something that is bigger than anything we’ve faced before,” said Tim Archer. “What is ahead of us between now and the end of this decade, in terms of demand, is bigger than anything we’ve seen in the past, and, in fact, will overwhelm all other sources of demand.” The concerning trend reveals that prices are escalating and supplies are depleting even prior to the AI giants fully initiating their data center construction plans. Alphabet and Amazon.com Inc. have recently unveiled ambitious plans for a construction surge this year, potentially amounting to $185 billion and $200 billion, respectively. This investment surpasses any previous record for capital expenditures by a single company within a year. Mark Li cautions that memory chip prices are set to go “parabolic.” While that will yield substantial profits for Samsung, Micron, and SK Hynix Inc., the remainder of the electronics sector will endure a difficult period in the months to come. “This structural imbalance between supply and demand is not simply a short-term fluctuation,” said Yang Yuanqing in an interview after earnings Thursday as he explained the crunch will last at least through the rest of the year. The disruption poses a significant threat to the profitability of entire product lines and is fundamentally altering long-term plans. Sony Group Corp. is reportedly contemplating delaying the launch of its upcoming PlayStation console until 2028 or possibly 2029, as per sources familiar with the company’s strategy. A significant disruption to a meticulously planned approach aimed at maintaining user engagement across hardware generations would occur. Close rival Nintendo Co., which contributed to the surplus demand in 2025 after its new Switch 2 console drove storage card purchases, is also considering raising the price of that device in 2026, according to sources familiar with its plans. Representatives from Sony and Nintendo did not provide a response to requests for comment.
A manager at a laptop maker stated, “Samsung Electronics has recently begun reviewing its memory supply contracts every quarter or so, versus generally on an annual basis.” Chinese smartphone manufacturers such as Xiaomi Corp., Oppo, and Shenzhen Transsion Holdings Co. are reducing their shipment targets for 2026, with Oppo reportedly slashing its forecast by as much as 20 percent, according to Chinese media outlet Jiemian. The companies declined to provide comments when approached. “Right now, we’re kind of in the middle of a storm that we are dealing with hour by hour and day by day,” Steinar Sonsteby told analysts in February. Cisco Systems Inc. pointed to the memory squeeze when it provided a disappointing profit outlook last week, resulting in its most significant share loss in almost four years. Qualcomm Inc. and Arm Holdings Plc have both issued warnings regarding further repercussions to come. At Sunin Plaza, the do-it-yourself PC mecca in Seoul, the typical weekday buzz has dissipated. The maze of stalls, previously a vibrant center for gaming graphic cards and motherboards, now lies shrouded in an unsettling silence. “It’s actually wiser to hold off doing business today, as prices are almost certain to be higher tomorrow,” said Suh Young-hwan. “Unless Steve Jobs rises from the dead to declare that AI is nothing but a bubble, this trend is likely to persist for some time.” The premium and DIY PC segment faced significant challenges when US chipmaker Micron made the decision last year to discontinue its well-known Crucial brand of consumer memory sticks, concluding three decades of operation. Kelt Reeves remarked that Crucial’s demise initiated a “stampede” to acquire as much inventory as possible, resulting in memory prices reaching unprecedented levels in January. In 2025, Falcon Northwest experienced an increase in its average selling price, which rose by $1,500 to approximately $8,000 for each custom-made computer.
All of this resonates with one of the most significant supply chain disruptions in recent history: the Covid-era shortages of affordable, essential auto and power chips that immobilized automakers from Ford Motor Co. to Volkswagen AG, compelled smartphone manufacturers to accumulate at inflated prices, and sparked a worldwide initiative, including in the US, to draw and establish local chip production. At that time, it was due to an unforeseen increase in demand for products from individuals working remotely and seeking to reduce contact. This time, the shortages arise from the memory industry’s shift towards AI. Meta Platforms Inc., Microsoft Corp., Amazon, and Alphabet are investing enormous amounts in data centers capable of training and hosting artificial intelligence algorithms, increasing spending from $217 billion in 2024 to approximately $360 billion last year — with an estimated rise to $650 billion in 2026. The extravagant expenditure — comparable to the most expensive human endeavors in history — stems from aspirations to surpass their formidable competitors in a domain that could shape their destinies. The major technology companies are investing heavily in the components, resources, and skilled personnel necessary to build the AI infrastructure. Few sectors have experienced such a profound transformation due to that rapid advancement as global memory. Over the past three years, ChatGPT has prompted Samsung, SK Hynix, and Micron to shift the majority of their manufacturing, research, and investments towards the high-bandwidth memory utilized in AI accelerators from Nvidia and Advanced Micro Devices Inc. This indicates a reduction in plant capacity for producing standard DRAM used in fundamental electronics such as mobile phones. The three companies are focusing on HBM rather than DRAM due to straightforward calculations.
For every Nvidia AI accelerator that the hyperscalers purchase, these companies also require high-bandwidth memory, or HBM, to support their initiatives. These chips consist of intricately packed DRAM, typically arranged in layers of eight or twelve. Nvidia’s latest Blackwell features an impressive 192 gigabytes of RAM, which is six times the capacity required by a powerful modern PC. An integrated AI server system known as the NVL72 features 72 Blackwell chips and 13.4 terabytes of RAM. Each NVL72 rack-scale system sold utilizes sufficient memory for a thousand high-end smartphones or several hundred powerful PCs. According to estimates, the demand for HBMs is projected to rise by 70 per cent year-over-year in 2026 alone. According to the consultancy, HBM will account for 23 percent of total DRAM wafer output in 2026, an increase from 19 percent last year. During normal times, they yield better margins due to the ability of companies like Samsung to charge more, stemming from the imbalance in supply and demand. Micron’s revenue is projected to more than double in the fiscal year concluding in August. In 2024, SK Hynix’s sales more than doubled and are expected to double once more this year. However, that surge in HBM business indicates challenges ahead for memory consumers. It leaves the rest of the world lacking the essential memory required for storing cellphone photos, steering cars, downloading movies, and running computer programs. GF Securities estimates a 4 percent gap between the supplies and demands for DRAM and a 3 percent gap for NAND; however, these figures do not yet account for low inventories in certain industries, suggesting that the actual imbalance is likely larger.
“DRAM shortages are set to persist across the electronics, telecom, and automotive industries throughout the year,” stated an analyst. “We are already seeing signs of panic buying within the auto sector, while smartphone manufacturers are pivoting toward more cost-effective chip alternatives to mitigate the impact.” It is improbable that the availability of fundamental memory will recover in the near future. Samsung, SK Hynix, and Micron have collectively faced numerous fluctuations in memory chip demand, experiencing several boom-bust cycles. As efforts intensify to boost supply, it is important to note that constructing and equipping the new chip facilities necessary for increased memory chip production will require several years. “This is the most significant disconnect between demand and supply in terms of magnitude as well as time horizon that we’ve experienced in my 25 years in the industry,” stated Micron Executive Vice President of Operations Manish Bhatia in an interview. Bhatia may be alluding to an increasing perspective that the industry is undergoing a so-called “super-cycle” of AI demand. This describes a significant wave of technology adoption that is so extensive and comprehensive that it is distorting or potentially eliminating the long-standing cycle of boom and bust in the memory sector. In this cycle, chipmakers increase capacity in response to rising prices, only to overextend themselves and trigger a downturn. This time, the upward trend is evident, and few — especially the hyperscalers — are taking chances on a conclusion.
Electronics companies such as Xiaomi, Samsung, and Dell Technologies Inc. have cautioned consumers to prepare for increased prices this year, particularly in light of the upcoming midterm elections in the US, where inflation may take center stage. Soaring memory costs indicate that DRAM may soon represent up to 30 percent of the bill of materials for low-end smartphones, a significant increase from 10 percent in early 2025. According to Counterpoint Research, “The biggest impact would be on cheaper handsets that lack pricing power.” Arista Networks Inc stated “Memory is now the new gold for the AI and automotive sector, but clearly it’s not going to be easy.” In February, Chief Executive Officer Jayshree V. Ullal addressed analysts. “It’s going to favor those who planned and those who can spend the money for it.”
