First it was GPUs and electricity, now AI is eating up the memory industry

The AI data center explosion has set off worries about overbuilding, environmental concerns about water usage, and increased energy prices. And now you can add a steep rise in the cost of important computer components to the list.

Prices for crucial parts, including dynamic random access memory (DRAM), also referred to simply as memory, are steadily increasing as data center builders scramble to get their hands on them.

The problem comes down to the fact that both consumer computers and data centers use DRAM.

While consumer PCs and other systems use a type of DRAM called double data rate memory (DDR), data centers use high-bandwidth memory, often called HBM.

But because they both use DRAM, suppliers are focusing more on building HBM than DRAM, thanks to higher margins on data center parts. And that’s starving the broader market.

It’s not just PC buyers who are feeling the sting, either. Everything from smartphones to cars to medical equipment could be impacted by the dearth of memory chips.

“It’s not going to be good for consumers, because it’s driving prices up, and very soon,” Ryan Reith, group vice president for IDC’s worldwide device tracker, told Yahoo Finance.

While most of us tend to think of GPUs powering AI data centers, they’re only part of the server clusters that run apps like OpenAI’s (OPAI.PVT) ChatGPT and Google’s (GOOG, GOOGL) Gemini. In addition to CPUs and storage, they also need large pools of memory.

The problem? There are only a few major memory manufacturers in the world. That includes big-name companies like Samsung, SK Hynix, and Micron (MU). And the incredible demand for data center equipment is driving up prices across the entire industry.

According to Reuters, Samsung has increased the prices of some memory by as much as 60%. Enthusiast site PCPartPicker, which tracks the prices of various memory sticks, shows the cost of some memory climbing from $100 to more than $250.

“I think the general consensus is that in the last month … this has gotten a lot more attention, and not in a positive way,” Reith said, adding that the price impact will likely end up getting passed through to consumers, especially on low-cost laptops.

That’s because companies that produce entry-level and midrange systems have less room to maneuver when it comes to pricing before they completely eat through their margins.

“All of those things are essentially PCs. Any embedded device, game consoles, specialized medical equipment, those are all embedded computers, and they all have memory, and they all have storage of some kind,” TECHnalysis Research founder and chief analyst Bob O’Donnell told Yahoo Finance.

But memory companies don’t necessarily mind if there’s a shortage of components for PCs and other systems if they’re raking in cash on HBM, especially because the margins on HBM are higher than other types of memory.

There are some ways device makers can try to offset the increased price of memory, including using cheaper, less powerful components elsewhere in their products or putting pressure on suppliers to reduce costs, explained Bernstein analyst Stacy Rasgon.

This isn’t the first time the tech industry has had to contend with memory supply problems, however. It is, after all, a notoriously cyclical market.

“What happens is, there’s huge demand, and capacity gets built out, but it’s never smooth,” O’Donnell said.

“So … you get to the point where all demand gets sucked up, so you build these new factories, then you end up with a ton more capacity, and then the prices drop precipitously because there’s too much capacity,” he added.

But with so many companies building data centers across the globe, it’s difficult to tell when the memory market will come back down.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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