The global race to build artificial intelligence infrastructure has triggered a significant shortage of critical memory components, from NAND flash and DRAM chips to hard drives. This surge in demand, primarily from AI systems, is squeezing supply for other electronics like PCs and smartphones, leading to sharply higher prices and record profits for memory manufacturers. However, in a surprising twist, the very companies producing these chips are showing remarkable restraint in expanding production, haunted by the brutal boom-and-bust cycles of their past.
The AI-Driven Demand Explosion
The core of the issue lies in the insatiable appetite of AI. Systems designed by giants like Nvidia and Advanced Micro Devices (AMD) require massive amounts of specialized DRAM to function. Furthermore, the operations of these AI systems generate enormous volumes of new data that must be stored, fueling demand for hard drives and flash-based solid-state drives (SSDs). Bernstein analyst Mark Newman calls this a "data explosion," projecting that shipments for data storage will grow at an average of 19% annually over the next four years, up from 14% in the past decade.
This demand is backed by staggering capital expenditure from tech behemoths. Combined spending by Amazon, Google, Microsoft, and Meta Platforms reached an estimated $407 billion in 2025. Analysts, using data from Visible Alpha, predict this figure will jump to around $523 billion in 2026. Morgan Stanley chip analyst Joe Moore noted in a recent report that this robust demand could sustain the industry upcycle for multiple years.
Record Profits But Reluctant Producers
The supply crunch has been a windfall for memory makers. Micron Technology posted record quarterly revenue and operating income in December 2025. Samsung forecasted that its fourth-quarter operating profit would triple year-over-year. On Wall Street, memory stocks were the stars of 2025. Micron, Seagate, and Western Digital saw their share prices more than double, making them the top gainers on the S&P 500. SK Hynix, a pure-play memory maker, surged 88% in just three months.
Despite these sky-high prices and profits, manufacturers are moving cautiously. The memory industry is infamous for its violent cycles, where rapid expansion leads to oversupply, crashing prices, and heavy losses. The last such downturn was in 2023, when Micron, Western Digital, Seagate, and Hynix all reported annual operating losses. This painful history is making executives think twice before committing to major new capacity.
A Cautious Approach to Capital Investment
Most memory producers are keeping their capital expenditure plans in check. Seagate is planning a notable increase, but primarily to maintain its historical capital intensity level of about 4% of revenue. Sandisk, which has seen its stock soar ten-fold since spinning off from Western Digital in February 2025, is expected to increase its capex by only 18% for the fiscal year ending June 2026, despite a 44% surge in revenue for the same period, according to FactSet estimates.
The challenge of long-term planning was highlighted by Sandisk Chief Executive David Goeckeler at a UBS conference in December 2025. He pointed out that the lack of long-term supply agreements in the NAND flash industry makes it difficult to justify the multi-year investments needed to build new fabrication facilities. "Perhaps the demand side should think about making commitments that are longer than three months at a time," Goeckeler suggested, emphasizing the need for stable economics to avoid periods of heavy losses.
As the AI revolution continues to accelerate, the world's dependence on memory chips will only deepen. The current shortage underscores a critical tension: while the demand signal is stronger than ever, the producers, burned by history, are determined to ensure that this boom doesn't inevitably lead to their next bust.
