The alternative is they could charge more. They could. And people would pay it.
If there is demand for N chips at $X price, but you only have N/2 chips, then half the people aren't going to be able to buy them. The people who really need the chips, and would be willing to pay a lot more than $X for them, will be competing with people who are only willing to pay $X for them. You will end up getting scalping and shortages and hoarding. Since people know that there are enough people willing to pay a higher price, everyone will try to buy them at $X, even if they don't need them at all. Just buy them at $X, and immediately sell it to one of those companies willing to pay a lot more.
The market is extremely inefficient... since the manufacturer isn't charging enough, you get way too many people trying to buy them from the manufacturer.
So you find the price where the demand is N/2 chips, and everyone who is willing to pay that much will get one, and there is no profit for scalpers so the only people who will buy them will be actual companies that need them.
The people who really want the chips, and are able to pay a lot more than $X for them.
Please can y'all stop pretending that raising prices allocates resources by need and willingness to pay? With the level of spending power imbalance, the person who wants something and has too much money will ALWAYS squeeze out the people who actually need something and have less money. Always. No other factors are considered by the market.
That’s what makes this so distinct so it probably shouldn’t just be some offhand parenthetical at the end. It’s incredibly expensive, it takes a long time, and it’s incredibly specialized. You can absolutely forget the idea of a “disruptive startup” entering that space too.
Previously investing in that space didn’t make a lot of sense. Now that there are a lot of consumers willing to buy something they can build and sell at a price between the previous low point and the current high point.
The only tricky thing is that the current shortages need to continue until the fans are well up and running.
Even if the supply side suddenly crashes due to the AI bubble bursting or someone inventing a way to only need 1/10 of RAM, I can imagine them keeping the prices relatively high.
Building things happens a bit quicker in PRC compared to the US. If they see it as a way to undercut the US/Taiwan hegemony on the chip markets, it might even just fun to do it.
This is a myth. The volume of inventory remains the same regardless of the price. When demand is higher than supply you have shortages regardless of price simply because you have unmet demand. If you raise prices, that demand is still unmet, you're now filtering that demand by who is willing to pay more so you maximize your own value and profit. Not even rationing prevents shortages because, again, the demand exists. Rationing simply tries to spread the supply around so more people get some rather than none. Price hikes instead say "who wants it badly enough?"
Rationing does not stimulate investment this way.
All demand is not equal. Some companies have very valuable business they can do with the inventory while other businesses have less valuable uses for it. The more valuable uses are willing to pay more, so higher prices means the most valuable uses get filled first.
I don’t believe scalpers are an issue in B2B; these aren’t concert tickets being sold to the general public.
It’s clear you grasp the economic theory as it’s taught, but my comment was meant for you to question it. If someone is hungry you can charge more for food. The market allows and encourages it. But don’t mistake that for “willingness” and don’t mistake raising the prices purely to get extra money from the exchange as some inevitable law of the universe. You’re welcome to love the concept, but don’t whitewash it.
Demand is elastic. If the price of potatoes rises to $1000 / kg most people will switch to using pasta or rice for their dinner instead. There might be a shortage of potatoes at $1 / kg, but not at $1000 / kg.
If my 7-year-old computer were to die tomorrow I would've normally replace the entire thing. It has had a good life, the newer generations of hardware are a decent bunch faster, and it would be nice to get some additional features. With current RAM prices? No way I can afford to upgrade to DDR5, I'll have to get a replacement AM4 motherboard / CPU to fix it.
> I don’t believe scalpers are an issue in B2B
They are called "speculators". DRAM is a commodity and is traded no different from, say, potatoes. It's why there are companies like DRAMeXchange. DRAM module assemblers like Kingston, G.Skill, and Corsair will buy chips from whoever gives them the best deal. Similarly, anyone assembling hardware using DRAM will have stockpiled it when the AI boom became noticeable - with some almost certainly selling it off now that it has become too valuable to use for cheaper products.
My MacBook is showing its age, though. Hearing that 2027 wont be any better makes me hopeful all the vibe coders can ask for memory efficient implementations to stretch existing hardware a little further.
I've been thinking about this too. After being forced to work off a laptop with 6GB of RAM for a few weeks it made me appreciate my 32GB at home where I run Electron apps with abandon. It still seems crazy to me that we've normalized running an entire browser for a single program just because the UI frameworks are too hard/unfamiliar to the majority of programmers.
> just because the UI frameworks are too hard/unfamiliar
i take it even with ai companies will still do this, whith exhibit a being the electron-based codex app from openai...
If potatoes suddenly became $1000/kg, everyone would agree that there is a shortage of potatoes. While sure, people won't starve and will eat other things, it doesn't change the basic fact that there aren't enough potatoes.
The situation with RAM is even worse. If I'm trying to build and sell computing devices, I need RAM. Whether no one is willing to sell RAM at all, or whether they'll sell it only for 10x yesteryears's price, it doesn't make much difference to me, I'm still going out of business. Sure, that will then make demand technically go down, but not the shortage.
1) Some people won't be able to afford alternatives. They will starve to death
2) There may not be enough of other foods, so even if people have money, people will starve to death.
There are years where corn or rice or oats are of poor yield. A couple of years of that, and canned food and stored food is gone. It doesn't take long for "we have no <core staple food>", and things become bad.
This isn't a 3 month or year long blip in RAM pricing. If nothing changes, no bubble bursts, we won't see RAM become plentiful until 2035 at least. And a tight supply until 2030.
That's not a year of no potatoes. That's a decade of a core crop, with loads of calories, gone. That's "people are going to starve somewhere" trouble.
(I hate this food analogy, because in the West we've not seen a drought cause people to starve for half a century, if not longer. People are too complacent.
To speak to that, we grow crops where we get best value for the money. And best results. Corn cannot be grown in much of Canada, it needs a LOT of sun to mature, where as wheat can with a shorter growing season. Rice needs lots of water, where as other crops are more tolerant. Potatoes do well in certain soils. If there are no potatoes, you cannot just grow anything in that location.
Take away a core crop, and you can just lose those calories. Especially as farmers won't switch on the first year of a lost crop.)
RAM is quite durable, so I can imagine buying new servers with new CPUs, but instead of DDR5, it has DDR4 RAM slots. A loss of performance to be sure, but a good way to renew your fleet, and reduce the impact of all of this. But such boards aren't really here I don't think, not in quantity.
The year 1845 called, and they'd like a word
In a lottery, the goods are misallocated to a bunch of people who aren't getting the most value out of the goods, creating economic inefficiency. A bunch of GPUs would be sitting in warehouses waiting to be resold (either when the price goes up, or in the inevitable black market), or in my basement screwing around with them, instead of being deployed in a way that the most people can benefit from creating maximum economic value from their deployment.
Your gaming PC isn't as economically valuable as JPMorgan using AI for fraud detection, for example.
Moreover, if you are appointed god and force everyone to sell GPUs at one dollar just because you want cheap GPUs, then this is the last batch of GPUs that will ever be produced and you'll have a shortage until the end ot time.
There are many other ways to allocate capacity. For example, you could give preferential access to customers who sign long-term purchase commitments, or some other favourable terms. These other methods might correlate well with value to the seller and might be easier for buyers to pay.
Other methods could be "allocate to customers that you want to maintain a good relationship with." I suspect HBM is not allocated either with pure auctions or by lottery.
One of the most difficult shortages during WW2 was rubber, because there was no (known, at the time) comparable alternative.
With GPUs, rationing would have the same effect as a lottery -- you either get to run AI, or you don't.
If there was an Ozempic shortage tomorrow, it's not the morbidly obese people who "really need" it who would be getting it, it would be the Hollywood A-listers who need to drop 4 pounds for their next movie, or the billionaire who's feeling a little tubby. Price is a good allocation system, but it's important to recognize that it's not a mechanism for attaining some kind of ethically "best" allocation.
(Other than a convenient-for-some/inconvenient-for-others "let the richest get the stuff first!" shift, and just pretending that we are all fully independent actors instead of members of a community?)
Raising prices is a way to filter for most valuable use.
With the basic supply/demand curve, "shortage" and "discount" are synonyms and I know which word makes more sense to describe the scenario.
Normal people definition: there isn't enough to go around
Economist corollary: there is enough to go around, people are just buying more than they need because the price is low
Can you tell the difference between the supermarket put potatoes on sale and sold out, and there are no potatoes because of the potato blight?
Sometimes this works and sometimes it does not.
If you happily sell apples for $1 and see a hungry person walking towards you, must you raise the price?
I think that basic thought gets lost sometimes when people talk about shortages causing the price to increase. The shortage didn’t cause anything, some executive decided they want more money. That’s all. There’s nothing inherent in the system that requires it. Whether that’s OK or not is up to the reader, I just think people lose sight of the reality and talk about it like it’s gravity, rather than simple decision making.
if you happily sell apples for $1 and now there are VC-funded companies who need a ton of apples to produce some dubious crap and can pay you $5 per. And you are the only company selling apples.
what you should do is keep selling $1 apples to retail customers and charge corporations as much as they accept. you invest it into more apple trees and maybe subsidize the hungry people even
To be clear, I’m not taking a fully altruistic position. I’m just tired of price hikes on things, from apples to memory, being blamed on the weather rather than openly understanding that it’s a person wanting more money. “I can’t afford gas because of the shortage” - No, it was the CEO saying a number in a meeting and that person has a name. When someone is robbed we don’t say “an economic disparity caused a wealth adjustment.”
Isn't that topic .. the first chapter of any economics 101 course? Supply and demand and how they influence each other? You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts?
Nonetheless, even after all these hundreds of years of economic study, companies still make mistakes (and occasionally, commit fraud). And we still have massive economic crashes. If only everyone understood the "basic concepts", all of this would go away and we would achieve 100% economic efficiency at all times. What a pity.
> Now, you could raise prices to the point where you destroy demand.
You know supply and demand is like a curve right, you can find an optimal equilibrium? It’s not a cliff that you can fall off.
An airline overbooks flights. Lots of people get their flights cancelled. Takes six months for the fallout to settle where everyone who got burned booked their future flights on a different airline. 3 months out the airline has to cut the number of flights and cut prices in the face of falling revenue to reclaim market share. As soon as they do that, they're flooded with too many bookings. So they take the bookings and overbook flights again, but it takes time to bring the new flights online.
It's not a 1:1 situation. Each time you miss the market you wobble a little further until all the inefficiencies of bad predictions eat you up.
Did this actually happen though? Is there any evidence or you are just imagining a scenario which if it did happen could lead to the scenario you outlined?
Several examples can be found in lists of supply chain disasters, eg the 1995 Apple production shortfall:
https://supplychaindigital.com/supply-chain-risk-management/...
I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you.
Do you mean because of the production lead time, higher prices won’t result in increased production? Commodities like corn have been managing this for a long time… what’s special about chips?
What is your actual argument?
Samsung, SK Hynix, and Micron have a combined market share of 90% - with most of the rest being a very new-to-the-market CXMT. It is a cutthroat market which behaves like a stereotypical "pork cycle". Semiconductor fabs cost billions to build and take years to complete, so you better be damn sure you have buyers before you start constructing one. You and your competition overestimated the demand? You have to pay back the construction cost, so you're now in a race to the bottom and one of you is going bankrupt.
Ever wondered where Intel came from? They started out as a DRAM manufacturer, which dominated their revenue well after the introduction of their first microprocessors. But in the early 1980s the glut of supply from new Japanese manufacturers made it so unprofitable that they had to ditch the memory market altogether. The stories of Texas Instruments and Motorola aren't much different. And that's not even mentioning the likes of Mostek, which once held a 85% market share and was dead less than 5 years later! Oh, and those Japanese manufacturers? All gone, pivoted like Intel or died like Mostek.
So no, the three remaining DRAM manufacturers aren't going behave like headless chickens and start ordering new fabs just because there's a bubble causing a temporary demand peak. Unless those AI companies are going to pay in advance, in cash, for an entire fab, they'll just have to wait and deal with the price increase.
So it's more "what's special about corn". It is also fairly hilarious to claim the parent is denying basic economics and then bring up corn as an example of having successfully managed economics. If the scales were not being thumbed, and "basic economics" were in play, corn would be in very very bad shape.
In the case of DRAM, there is an incredibly long history of these gloom/glut cycles, and they have stayed roughly the same timeframes (~3 years) since the 1990's.
Almost all the ones who have survived this long are either in the same kind of boat as corn - protected in various forms from the downside - or don't increase production and get caught out until they are absoultely forced.
The very temporarily increased profit is not worth going bankrupt for - they make more money long term by being very cautious and know this.
There are a near infinite number of economic studies you could look at (and several sibling comments cite some) - DRAM manufactuers don't chase the price and probably couldn't anymore if they want to.
None of this denies basic economic theory, of course, since economic theory is not exactly "rigorous", even to the degree it could be (IE even the parts that are pure analysis of data rarely reproduce!).
Memory is just too useful now that you can use it to drive cars and write code.
Which directly leads to the next big development: all the big players are investing in silicon with "baked-in" models, like [0,1]. Turns out you don't need an expensive general-purpose GPU with heaps of RAM to contain a model when you can make a custom ASIC around one specific model! Why spend a fortune on DRAM / HBM when all you need is some finetuning parameters which are easily stored in on-die SRAM?
[0]: https://www.theregister.com/systems/2026/08/06/amd-acquires-...
[1]: https://thenextweb.com/news/google-frozen-chip-gemini-silico...
Everyone. Open models are going to keep prices down. A lot of current models are more than usable. Self-hosting would have been an option if hardware prices get back to sane values.
The insane investments have to do with insane over-valuations, VCs involved and hence media spam on it. Chinese labs for example make do with 1% of the valuation and 1% of the resources.
Yesterday a coworker posted on a customer's Slack the specs of a box he is planning to buy to run local models. It's about 5k Euro. I am paying 18 Euro per month for Claude Pro and I'm going through a migration (almost a total rewrite) of a web app from Vue 2 / Vuetify 2 / Vuex to Vue 3 / Vuetify 4 / Pinia. I never hit the 6 hours limit. I could consider running an equivalent model on a 500 Euro machine (about 2 years of Claude Pro) but 5k is 20 years and that box will be obsolete or will have failed beyond repair (no spares) much earlier than that.
In any other business choosing (2) would mean someone else swoops in and steals all your business. It doesn't look like this is at all possible for memory fabs.
FWIW - Lots of people seem to believe the "in any other business", but it turns out there are tons and tons of places it is equally untrue, even where there is near zero time or cost barrier to entry.
You can use the state of the art from 20 years ago for that.
"If the price is high enough" is of course technically true, but the scale of what high means in this context is important.
That's a classic stereotype of what an economic "expert" is going to say, while completely ignoring reality. Just because someone is willing to pay for it, does not mean, that goods just materialize. Sure, a lot of the time someone finds a way, but that is still limited by physical constraints: lack of expertise, lack of needed resources or as in this case simply lack of time.
Chips aren't grown, for starters. They require very expensive facilities that take a long time to plan, build and start up. And ag firms are not seeing their stock price skyrocket based on the assumption that they will show exponential revenue growth every quarter, so there's no incentive for them to overbook their capacity and hope for the best. Maybe if the population was doubling every six months, you'd see something similar in corn. Prices in the real world are not perfectly elastic, and big deals are often locked in long before actual production.
It's a frictionless market in a vacuum right? No barriers to entry. You could make one right now if you wanted.
Maybe you could pay someone else who is less desperate to part with some, but that does not increase supply.
Nine women cannot produce a baby in a month, even though you could average about one per month if you wait about nine months.