The insatiable demand for more generative AI is spiking prices in computer parts, which could roll into pricier smartphones next year.
Years of cryptocurrency mining have elevated the prices of computer parts such as graphics cards. So it's not surprising to see this trend continue with the rise of generative AI and its unrelenting need for more computing power.
What the consumer tech world didn't expect was an increase in demand for memory, which has led to a tight market in consumer RAM for PCs in recent months. That ripple effect has extended beyond computing to impact the smartphone industry as well.
Rather than the memory sticks that slot into PC motherboards, smartphones use specialized RAM that's miniaturized to fit in handsets. However, with memory production shifting to meet the demand for massive orders from data centers that handle AI workloads, the gen AI rush is driving up prices for all types of RAM.
And this isn't just a temporary mismatch in supply and demand -- it could be a permanent shift in the world's silicon wafer capacity, according to a mid-December report from the market intelligence firm International Data Corporation (IDC).
Phone-makers weathered the economic turmoil of tariffs by absorbing costs, but analysts predict it'll be a different story in 2026 -- and cost increases will likely be passed on to consumers.
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"In the case of the upcoming memory crisis, this is something that will hit the market hard, especially to [phone-makers] playing in the low end where margins are extremely tight," said Nabila Popal, senior research director at market intelligence firm International Data Corporation (IDC). "Those vendors will have almost no choice but to pass the increased cost to consumers."
How much more expensive will phones get next year? The low end of cheap phones will likely see the biggest fluctuations. Popal expects prices in this category to spike by at least 5-10%. That's because memory makes up 15-20% of the material costs of cheaper phones, which is a higher proportion than that of pricier premium phones (around 10-15%), according to the most recent IDC report.
In response, phone-makers will shift their mix of products toward the higher end, selling more expensive handsets that have higher margins, Popal predicts. This memory crisis has been disruptive enough to alter IDC's prediction of average phone prices in 2026, swinging from a slight decline to a 2% increase. While this is likely to lead to a decline in units shipped next year, increased prices are expected to drive the overall smartphone market to a record high value of $578.9 billion, according to an IDC report released in early December.
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