AI may not yet have boosted corporate profits or enhanced employee productivity, but it has already created a shortage of memory chips, critical components in the technology industry, as manufacturers prioritize supply for hyperscalers over the chips used in laptops and smartphones.
Tesla, Apple, and other big companies have already warned that DRAM shortages, the main type of memory in most devices, could hurt their businesses. In particular, Tim Cook worries that rising memory costs could squeeze iPhone margins, while Elon Musk says Tesla might need its own memory plant to secure supply.
Cisco shares, meanwhile, fell more than 10% as rising memory costs reduced margins. In particular, adjusted gross margin fell to 67.5% from 68.7% a year earlier, and Cisco expects it could continue to decline to 65.5%–66.5% next quarter, even though the company exceeded revenue and profit expectations.
Investors tracking semiconductor exposure through a stock screener may notice a pattern: earnings beats are increasingly being overshadowed by margin compression tied to component costs.
The broader market has shown flashes of sensitivity as well. On days when inflation fears resurface, Dow Jones futures have reflected renewed anxiety over cost pressures — including those emerging from technology supply chains.
And the worst part is that demand for memory has probably not yet peaked.
Large technology companies plan to purchase millions more Nvidia accelerators, equipped with high-bandwidth memory, to power chatbots and AI applications. This year alone, Microsoft, Alphabet, Amazon, and Meta are on track to collectively spend more than $650 billion on AI-related investments.
What does this mean for consumers?
In short, higher prices on most devices. Nintendo, for example, plans to raise prices on the Switch 2. Chinese smartphone makers, such as Xiaomi and Oppo, are lowering their shipment targets. And Sony is even considering delaying the launch of the next PlayStation until 2028 or 2029.
Overall, electronics, telecom, and automotive sectors are all feeling the strain.
Is it too late to invest in chipmakers?
Not necessarily, but the risks are increasing. Competition is intensifying, and many semiconductor companies are heavily dependent on a small number of major customers. In the case of Nvidia, for example, a significant portion of demand is tied to players such as OpenAI. If one of these key customers were to reduce its spending, the financial impact could be significant.
There is also the broader issue of sustainability. If investments in AI fail to generate the expected returns and shareholders become increasingly impatient, big tech companies could end up scaling back their spending plans.
If chipmakers seem too risky or already overpriced, it’s worth keeping in mind that suppliers of critical raw materials, such as copper and aluminum, which are essential for semiconductor production, could also benefit if AI-driven demand continues.
This article was written by IL Contributors at investinglive.com.
