Rising memory chip prices add pressure to AI spending forecasts

In short: Chip stocks are falling as investors worry that high memory chip prices could slow AI-related buying and make future sales forecasts unrealistic.

What's going on

Shares in global chipmakers dropped this week, with South Korea’s market hit especially hard because it is home to two major memory chip companies. The Financial Times says the sell-off reflects growing doubts about how long the current AI-driven spending boom can last.

A key issue is memory. Memory chips such as DRAM and NAND are the parts that store data, like a desk where a computer keeps what it is working on. Analysts at Jefferies said consumer electronics companies are struggling to accept recent price jumps, estimated at 80 to 100 per cent in the last quarter, and they are pushing back because demand for phones and gadgets is weak.

Jefferies also suggested market expectations for more price increases this quarter may be too optimistic. The report argues that if only the biggest AI infrastructure buyers, like large cloud companies, are willing to pay top prices, then the broader market may buy less. That can cap how high prices go, even if they do not fall.

What to watch

Investors are focused on whether today’s spending plans can support the big revenue growth forecasts for 2027. Jefferies says hitting those forecasts could require extremely large increases in AI spending, which may be hard to fund if AI products do not generate as much money as expected. Watch upcoming earnings from major tech companies for clues on whether they will keep raising their budgets for chips and memory.

Source: Financial Times