The effects of Sam Altman on the electronics market

When OpenAI last year said they secured 40% of memory production for their Stargate project, the price of “normal” memory shot up. Within 2 months, the price rose by 400–800%.

Sam Altman and the GenAI bubble

Reason why: Memory producers switched from DRAM to HBM production (High Bandwidth Memory). Immediately leading to shortages on the consumer memory market. HBM is mainly used in AI servers. Consumer memory = DRAM. Samsung, SK Hynix and Micron produce 88% of the memory, worldwide. So, it’s a semi-monopoly market (triopoly?).

Production lines are incompatible and the DRAM market is a commodity market. Buy chips, put them on a module and sell the module with a markup as fast as possible. When the basic chips go from, -say- 5$ a piece to 30$ and you need 8 of them for a memory module, the cost rises exponentially.

Prices used are indicative, not 100% accurate

The cost of the module itself + the logistics + markup etc. goes from 40% of the selling price to 10%. The price of 1 module goes from [5$8 + 25$ =] 65$ to [30$8 + 25$ =] 265$. Module makers suddenly have to secure wáy more funds to buy the chips, while still making the same, absolute profit on the module.

On average. DDR3 and DDR4 rose less than DDR5, for instance.

Suddenly margins on memory are not worth it anymore; 10$ on 265$ is nothing. 10$ on 65$ is profit. As a result, Micron immediately cancelled their Crucial brand of consumer memory. Furthering the shortage on the market, since memory is a commodity.

If you close the Strait of Hormuz, the price of oil shoots up due to supply constraints. Same counts for memory. It’s a commodity.

Now, the most direct effect was on the price of consumer PCs, laptops and regular servers. But memory is found EVERYWHERE. Buy an SSD? Memory. Buy a new phone? You look at the amount of memory in it as one of the deciding factors. Graphics card? Memory. Game console? Memory. The relative increase of the price will not be as high as with memory modules, but the price increase hás to be pushed on to the consumer market.

This rise in prices is not constrained to the memory market, though. The prices of all commodities have been rising, over the past few years. Copper and all kinds of other metals tripled in price, or more. The demand for raw materials in general has been rising much faster than the growth of supply (mining!) can keep up. All these factors will lead to higher consumer prices.

Memory Chip vs Memory Module

Memory is even found in the most banal & stupid things, like dishwashers and microwaves. Memory is EVERYWHERE. They are like batteries; your [wireless] device will not work without it. Just like with oil; when a shortage occurs, the price will shoot up. Once the shortage gets solved, the price will only gradually come down, partly to make up for the losses that occured during the initial panic.

The rise in demand for raw materials as well as memory and CPU’s and Hard Disks etc. is partly due to the explosion of AI datacenters. Meanwhile, the constraints on trade markets, triggered by #TACO’s tariff policies, reduces the supply & increases the cost of these same raw materials.

Prices will NOT come down to 2025-levels. Ever.

Lately, Sam Altman admitted he could not fullfil the 40% pledge. But now these memory makers have already switched their production lines to HBM. The extra production will simply go to NVidia-, AMD-, and SuperMicro servers, for as long as the AI bubble keeps growing. There will be NO extra DRAM produced. So, as a consumer, we will keep on paying stupid prices for a commodity.

Commodity prices 2013–2024

It is only when the AI bubble pops, that memory makers will feel safe enough to switch back to DRAM production. And once it pops, it will take at least half a year to get DRAM production up to par and fill the gap between demand and supply. So, even when the bubble pops by the end of 2026, it will take at least until summer 2027, before prices come down to a reasonable level. That new level will be somewhere between 150% and 200% of the incredible low levels of 2025.

Have we seen this before?

Sam Altmann, with his pledge to buy 40% of the worldwide production of RAM, has caused an incredible inflation on electronic devices. 1 statement of 1 person caused the whole world to pay 25% more for their electronics over the long term and a 400% to 800% increase of memory prices in the short term.

We have not seen this before. And I am prety sure the markets are paying attention. We did see something similar during the Crypto-boom of 2017–2018, though. GPU’s/Graphics cards tripled in price over the course of half a year and stayed at that level for at least 3 years. Even now, their comparable cost is still 30-50% higher than before 2017.

The Crypto Boom tripled the price of GPU’s over the course of half a year

At that time, it was because more and more people started to mine, so the demand rose wáy faster than supply could provide. Eventually, it topped out and demand fell off a cliff, once the mining craze was over. The difference is that it accumulated into peak demand, not a sudden 40% increase of demand overnight.

That’s why the markets are paying attention. If you are powerful enough to manipulate the market, whether if it’s as a person or a company, there is money to be made. And remember: It is ALWAYS YOUR money that funnels up. It’s not an infinite money glitch; the money has to come from somewhere. And usually it is YOUR pension fund.

I can’t wait for the AI bubble to pop. But I won’t be able to upgrade my PC for at least the upcoming year. I will have to wait for prices to normalize. And I am sure #ElonIsaNazi will come up with the next bubble; his AI robots, or something.

Signing off & going for a nature walk,

Timo