Since last October, SK Hynix's headquarters in Icheon, near Seoul, has been receiving a steady stream of visitors from PC manufacturers and electronics suppliers, who come to hold emergency meetings with executives of the South Korean memory chip maker. Their primary concern is the impending shortage of memory chips, which could begin impacting product launches as early as next year.

"We've received numerous requests for memory semiconductor supplies from various companies, and we're very concerned about how to handle all of these demands," SK Group Chairman Chey Tae-won said earlier this month at a forum in Seoul.

Chey added that OpenAI is one of the companies seeking large-scale supplies, noting an agreement signed last month to supply the US company with 900,000 high-bandwidth memory (HBM) wafers per month for its Stargate project, which it uses to build hyperscale AI infrastructure.

A similar scenario is unfolding at the factories of rival Samsung Electronics - the world's largest memory chip manufacturer. Customers from around the world are placing orders for chips, hoping to ensure their 2026 product launch plans are met on time.

"We continue to see strong demand for DRAM and NAND in the memory market, primarily driven by server applications," said Kim Jae-joon, executive vice president in charge of the memory business, on last month's earnings call, referring to dynamic random-access memory and NAND flash memory chips.

He added, "Furthermore, for mobile and PC applications, we've seen market prices rise as the industry prioritizes supplying AI servers to meet demand, leading to growing concerns about supply shortages."

DRAM and NAND flash memory

Strong demand for AI data centers and related infrastructure has triggered a buying frenzy for key memory components, particularly DRAM and NAND flash memory, as well as other specialized types such as NOR flash memory. According to Nikkei Asia, almost all major memory manufacturers are operating at near or full capacity, with their 2026 capacity nearly sold out.

A supplier executive familiar with the situation stated, "Currently, small and medium-sized enterprises (SMEs) are competing with well-funded internet and technology giants for memory supplies. From Samsung and SK Hynix to Kioxia and Micron, most mainstream memory chip manufacturers are prioritizing the needs of AI computing and data centers. Companies in other sectors may be worried about securing sufficient supply." An executive at a Japanese component supplier said, "It's a bit like the situation during the COVID-19 pandemic; even if you have the money, you can't buy the raw materials you need. SK Hynix, Samsung, Micron… their current capacity, as well as their 2026 capacity, are completely booked." This sudden supply shortage is strikingly different from the past two years. During those two years, many memory chip manufacturers experienced a severe downturn as consumer electronics companies and automakers struggled to digest large inventories. Artificial intelligence (AI) data centers not only require powerful processors but also significantly more memory than traditional data centers. Therefore, the surge in AI infrastructure construction has caused memory demand to rebound much faster than many anticipated, and the resulting shortage is unlikely to be resolved in the short term.

Morgan Stanley estimates that major cloud service providers' spending on AI data center servers is projected to increase from $285 billion in 2024 to $468 billion in 2025, reaching $621 billion in 2026.

An executive at an electronics component supplier told Nikkei Asia, "We're getting about double the orders from Nvidia as we did in 2025, and AMD's orders have increased by 1.5 times… not to mention that Amazon and Google's orders have also increased compared to this year." He added, "If these figures are accurate, then not only will memory products face supply shortages, but other types of supporting components, such as printed circuit boards, may also face shortages." 

Nvidia and AMD

Nvidia and AMD are the two leading companies in building AI computing capabilities, supplying chips to companies like Google, Amazon, Meta, and Microsoft. These companies are also developing their own AI chips, thus requiring memory products that meet their specific internal needs.

In the DRAM sector, growth is primarily driven by demand for HBM. HBM, by stacking multiple layers of DRAM, provides faster connection speeds, higher transfer rates, and lower latency. DRAM production is mainly dominated by Samsung, SK Hynix, and Micron, with China's Changxin Memory Technology emerging, while smaller manufacturers such as Nanya Technology and Winbond Electronics are also vying for market share.

An industry executive stated that a key reason for the supply shortage is that memory chip manufacturers are prioritizing the production of HBM chips for AI servers.

To meet the huge demand from AI servers, many major global suppliers are phasing out older DDR4 products in favor of DDR5, even though many consumer electronics and other electronic devices still require this lower-tech DRAM.

The combination of limited capacity and continued demand has led to soaring prices. For example, according to data from DRAMeXchange and Bank of America Securities, the spot price of 16GB DDR4 DRAM has risen 840% year-on-year to approximately $30.30, more expensive than 16GB DDR5 (currently around $20), which has risen 316% over the same period.

This industry executive stated that PC manufacturers are the most vulnerable because, "when the market shifted from extreme shortage to oversupply after the COVID-19 pandemic, they showed no mercy, so naturally they won't get more supply from memory chip manufacturers now." Supply chain disruptions during the pandemic, coupled with a surge in demand for PCs and other electronic products after working from home became the norm, led to severe shortages of various components. Investments in rapid capacity expansion, in turn, resulted in oversupply after the pandemic subsided.

"This time, chip manufacturers are very cautious about increasing memory chip production capacity; they are focusing on high-end memory chips that meet the needs of artificial intelligence. If there is a shortage of smartphones, PCs, or general-purpose memory chips, they will raise prices," Simon Woo, head of Korea research at Bank of America Securities, told Nikkei Asia.

Woo stated that large tech companies and top electronics manufacturers may need to pay more for memory chips, but they don't need to worry about supply issues, while "white-box vendors and smaller companies may encounter memory chip shortages."

Gokul Hariharan, co-head of Asia Pacific Technology, Media and Telecom Equities Research at JPMorgan Chase, said that strong demand for artificial intelligence has driven up overall memory consumption, although the recovery in consumer electronics, automotive, and industrial applications is "not so pronounced." 

The demand for artificial intelligence

"Demand for artificial intelligence is crowding out a lot of supply…so even in supply chains not directly linked to AI, prices for many goods (storage products) are starting to rise," said Hariharan.

NAND flash memory, used for data storage in solid-state drives (SSDs) and particularly important in inference (i.e., using trained AI models to generate content or perform tasks), is also facing constraints.

Kioxia Holdings, the world's second-largest NAND flash memory manufacturer, expects global NAND flash memory supply to remain tight as AI data center construction surges, and anticipates record revenue and profit in the next quarter. Company executives stated that this supply-demand imbalance will persist until at least 2026 due to accelerated infrastructure investment by hyperscale cloud service providers (i.e., companies providing large-scale cloud services).

Kioxia's president and CEO stated on the earnings call that demand for AI-related data centers "remains strong," leading to a significant increase in orders for high-performance storage.

"The surge in AI data center inference demand means that the storage space required to run inference workloads far exceeds that needed for training. This is driving huge new demand for storage, which relies on NAND flash memory and hard drives," said the president of Silicon Motion, a leading global developer of NAND flash memory controller chips. "This is a structural shift, with new demands emerging rapidly, and the entire industry must work together to address them."

An executive at a Taiwanese memory chip distributor told Nikkei Asia that his company is raising bids for DRAM, NAND flash memory, and SSDs daily due to worsening supply constraints.

"Although we are a major buyer for memory chip manufacturers in South Korea and the United States, supply is indeed very limited," the executive said. "Recently we had to introduce a daily bidding mechanism because the price in the morning is drastically different from the price in the afternoon."

The executive stated that, for example, one US NAND flash memory chip manufacturer has raised its prices by more than 70% this year. "However, even if we pay higher prices, we still cannot get more chips from them, even in small quantities, due to their limited capacity." 

Bit gap

Omdia analyst Claire Wen stated that a surge in demand for solid-state drives (SSDs) from major cloud service providers in late August and early September disrupted the previously relatively balanced supply and demand situation. "We currently expect the supply-demand gap to exceed 10% next year, compared to less than 2% in 2025." The "bit gap" refers to the difference between supply and demand, measured in memory bits.

Wen stated that these restrictions will lead to an average price increase of approximately 15% to 20% for NAND flash memory across the industry in the fourth quarter of this year, and a further increase of 10% to 25% in the first half of next year. The analyst also stated, "Due to supply shortages, some deals may even see prices higher."

TrendForce analyst Bryan Ao stated, "We can even foresee 2026 becoming the best year ever for all NAND flash memory manufacturers." He said the industry's average operating profit margin is typically around 15%, "but in the fourth quarter, profit margins already reached 15% to 20%, and are expected to grow further next year due to strong demand." The memory market is highly volatile; once supply exceeds demand, prices can plummet rapidly. For the past two years, aside from artificial intelligence applications, memory chip manufacturers have faced weak demand for memory. For example, Taiwan's Nanya Technology has experienced net losses for more than ten consecutive quarters, and even major manufacturers such as Micron and Samsung have experienced periods of declining profits.

This makes the current surge in demand a mixed blessing for many, and a major headache. Micron Technology's stock price has surged over 150% in the past six months, while Samsung's has risen over 70% during the same period. Winbond Electronics, after four quarters of losses, returned to profitability between July and September, with capacity utilization reaching 100%. President Chen Pei-ming stated that the company expects to maintain a positive outlook until 2026.

Chen stated, "Spending on AI infrastructure may eventually reach the point of overinvestment, but we haven't reached that point yet. There's still room for this investment cycle to grow."

According to TrendForce, the average price of traditional DRAM will turn positive in the fourth quarter of 2024 and continue to climb. Meanwhile, NAND flash memory prices are not expected to recover from their slump until the second quarter of 2025, but the current upward trend is accelerating.

However, the outlook is not entirely rosy. A major concern is that while this boom is good for memory manufacturers, it could push costs to levels that are unsustainable for device manufacturers and consumer electronics brands. 

SMIC's attitude

Zhao Haijun, co-CEO of SMIC, China's largest chipmaker, said smartphone manufacturers are already feeling the impact and are increasingly concerned about memory chip shortages. "If smartphone manufacturers can get processors and other components, but there's a memory shortage, they still can't ship," he said.

Zhao added, "From another perspective, if memory prices rise too quickly, it's uncertain whether these smartphone manufacturers can bear the higher costs, and whether spending on other components will be squeezed as a result." The co-CEO of Pegatron, a supplier to companies like Apple, Microsoft, Google, and ASUS, said DRAM supply is already "tight." He stated at an investor conference last week, "We predict single-digit percentage growth in our computing business this quarter and next year, but memory chip supply is the biggest uncertainty." ASUS's co-CEO told investors that the company currently has enough memory chip inventory to last about four months, so the impact on this quarter is limited. He stated, "However, we will adjust product prices as appropriate" to address factors such as cost changes, the situation of retail and sales channel partners, and end-market demand.

TrendForce analyst Ellie Wang also believes the biggest concern is whether downstream device manufacturers can withstand the sharp rise in component costs.

"Our greater concern is that if memory prices rise too quickly, consumer electronics manufacturers will eventually have to raise product prices to reflect the higher costs. This could hurt end-market demand."

Meanwhile, memory creators are also grappling with another major question: how long will this supercycle last?

Min Wu, founding chairman and CEO of Taiwanese memory chip manufacturer Macronix International, stated that demand is recovering, prices are rising significantly, and the overall industry situation is improving. Macronix International is a major supplier to Nintendo and customers in the automotive, aerospace, and consumer electronics sectors.

Mr. Wu said, "However, what remains uncertain is how long this momentum will last and how the trend will evolve. Whenever supply is tight, some customers start placing orders with multiple suppliers to secure supplies, which can lead to duplicate orders at some point in the supply chain."

Source: Content compiled from Nikkei

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