A global shortage of memory chips, fueled by surging demand from the artificial intelligence sector, is threatening to constrain production and drive up prices for a wide range of consumer electronics, from smartphones and laptops to automobiles. The crisis, already impacting corporate margins, is expected to worsen in the coming months, according to warnings from tech industry leaders including Elon Musk and Tim Cook.
The core issue is the insatiable appetite for DRAM (dynamic random access memory) from companies building out AI data centers. Alphabet Inc. And OpenAI are increasingly consuming a significant portion of available chip production to power their AI applications, leaving manufacturers of consumer electronics scrambling for dwindling supplies from companies like Samsung Electronics Co. And Micron Technology Inc.
The price increases are already substantial. The cost of one type of DRAM soared 75% from December to January, accelerating price hikes throughout the holiday quarter, a trend some industry observers are calling “RAMmageddon.” Retailers and intermediaries are reportedly adjusting prices on a daily basis as supply struggles to keep pace with demand.
Tesla Inc. And Apple Inc. Have both signaled that the chip shortage will constrain production. Apple’s Tim Cook specifically warned that the shortage will compress iPhone margins. Elon Musk, in late January, stated that Tesla is considering building its own memory fabrication plant, acknowledging the severity of the situation. “We’ve got two choices: hit the chip wall or make a fab,” he said.
The current crisis differs from previous cycles of chip shortages in both its scale, and duration. Manish Bhatia, Vice President of Operations at Micron, described it as “the most significant disconnect between demand and supply… in the 25 years I’ve been in the industry.” Unlike past shortages, which were often tied to specific events or components, this crisis is driven by a fundamental shift in demand spurred by the rapid expansion of AI.
The impact is rippling through the tech sector. Sony Group Corp. Is reportedly considering delaying the launch of its next PlayStation console until 2028 or 2029. Nintendo Co., buoyed by strong sales of its new Switch 2 console, is also evaluating price increases. Chinese smartphone manufacturers, including Xiaomi Corp., Oppo, and Shenzhen Transsion Holdings Co., have already reduced their shipment targets for 2026, with Oppo cutting its forecasts by as much as 20%.
The memory chip shortage is also impacting the automotive industry. Manufacturers are facing pressure to secure supplies, and some are reportedly engaging in “panic buying” to ensure they can maintain production levels. The rising cost of DRAM is expected to contribute to higher vehicle prices.
Analysts warn that increasing production capacity will take years. While Samsung, SK Hynix, and Micron are all investing in expanding their manufacturing facilities, building and equipping new fabs is a lengthy and capital-intensive process. This means that the supply-demand imbalance is likely to persist for the foreseeable future.
The cost of DRAM is becoming a significant portion of the overall cost of electronic devices. Analysts at Counterpoint Research estimate that a DRAM chip could soon represent up to 30% of the cost of a low-end smartphone, up from 10% at the beginning of 2025. This will disproportionately affect manufacturers of cheaper devices, who have less pricing power.
The situation is further complicated by the massive capital expenditure plans announced by major tech companies. Alphabet and Amazon.com Inc. Have announced plans to spend $185 billion and $200 billion respectively this year, exceeding the historical record for annual capital investment by a single company. This influx of investment will further strain the supply of memory chips.
“The memory is now the new gold for AI and the automotive sector, but it clearly won’t be easy,” said Jayshree V. Ullal, CEO of Arista Networks, a partner of AMD. “Those who have made plans and can spend the money will be favored.”
Mark Li, an analyst at Bernstein, warns that memory chip prices are becoming “parabolic,” suggesting a potentially unsustainable rate of increase. While this will generate substantial profits for Samsung, Micron, and SK Hynix, the rest of the electronics equipment sector will likely face significant cost pressures.
Tim Archer, CEO of chip equipment supplier Lam Research Corp., emphasized the magnitude of the challenge, stating, “We stand at the cusp of something that is bigger than anything we’ve faced before. What awaits us from now until the end of this decade, in terms of demand, is larger than anything we’ve seen before and will, in fact, overwhelm all other sources of demand.”
