This Overlooked Shortage Could Be Tech's Biggest Catalyst Yet
Gamers are struggling as the price of "speed" skyrockets...
For high-end games, computers need to be fast. They must juggle textures, maps, characters, soundtracks, and more... all without slowing down gameplay.
And many gamers don't stop there. They run background processes like game modifications ("mods"), voice chat, and video streaming, to name a few.
For all these tasks, computers rely on not just RAM, but dynamic random-access memory ("DRAM"). Computers store files in DRAM to access on demand rather than needing to load them. This is what gives gamers the speed they need...
But unfortunately for consumers, artificial-intelligence data centers also need DRAM.
"I genuinely haven't seen DRAM prices this bad since 2018," one gamer wrote on social media platform X last week.
This new demand is already causing a surge in memory prices. And it will lead to a new megatrend for investors...
You might not think about it much. But the random-access memory market sees long-term booms and busts.
That's because DRAM production is difficult and time-consuming. It takes businesses six months on average to produce a finished DRAM chip. So they can't easily start or stop production as demand shifts.
After DRAM demand peaks, producers still churn out chips. That leads to a surplus... And the price of memory crashes.
But the opposite is also true. When a new technology demands more memory, the extra supply gets snapped up... leading to a shortage and higher prices.
Take a look at the spot prices for 4 gigabytes ("GB") of Double-Data Rate 3 ("DDR3") DRAM. This low-end standard has been in use for more than a decade...
Memory spot prices have been choppy since 2013. And it's not just the low-end memory. You see the same pattern in prices throughout the industry.
Typically, DRAM booms last for around 18 months to two years. And as you can see, prices are starting to rally again right now.
But this DRAM cycle might be even bigger... because it's supercharged by AI demand.
The Next Tech Supercycle Starts With DRAM
This October, OpenAI announced a partnership with Samsung and SK Hynix, the two largest memory suppliers in the world. The deal gives OpenAI access to 900,000 DRAM wafers a month over the next four years. That's up to 40% of monthly global DRAM production.
Memory prices have already soared triple digits since last year. But the move has picked up steam since October. We can see it using the price for 16 GB DDR4-3200 DRAM, a mainstream memory standard for PCs. Take a look...
Memory prices slowly increased this summer. But the real gains didn't start until October. So we're still in the early days of this memory boom.
We can also see this squeeze by looking at the weeks' supply of DRAM inventory. This metric from research firm TrendForce shows how many weeks it would take to sell out of memory at current market conditions.
The DRAM industry considers eight weeks of supply to be a healthy level of inventory. But at the start of the fourth quarter, global DRAM inventory sat at only 2.7 weeks – down from 3.3 weeks the previous quarter.
In short, DRAM businesses are scraping the bottom of the barrel for inventory. With the shortage in full swing, the price moves we've seen so far are likely just the beginning.
Conditions are ripe for a DRAM boom today. This is a powerful tailwind for chip companies – especially the ones that create memory.
Gamers are worried about soaring DRAM prices. But for investors, this is a new megatrend you don't want to miss.
Keep an eye on memory companies today. They're likely to soar as this new supercycle unfolds.
Good investing,
Sean Michael Cummings
Further Reading
Headlines say a famed investor just made a billion-dollar short bet against AI. But that's not quite true – and regardless of the amount at stake, the move only added noise to the market. As one indicator shows, it may be far too early to bet against the AI megatrend.
"America's electricity supply is becoming increasingly strained," Sean writes. Traditional energy can't keep up with the demand from thousands of new AI data centers. But one technology can – which is why it's quietly becoming the key to the entire AI build-out.
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