The global tech industry's artificial intelligence (AI) boom is triggering a severe supply-demand imbalance in the memory chip market. This shift is not only driving up the cost of key components but also exerting fresh pressure on the worldwide video game industry—console manufacturers may be forced to raise prices due to cost pressures, potentially dampening already weak consumer demand.
Dynamic Random-Access Memory (DRAM) and NAND flash modules are core components of all modern gaming consoles, including Sony's (SONY.US) PlayStation, Microsoft's (MSFT.US) Xbox, and Nintendo's (NTDOY.US) upcoming Switch 2. However, as tech companies pour hundreds of billions into AI infrastructure, high-margin chips for data centers are getting priority from memory makers, leading to persistently tight supplies for consumer electronics.
US memory giant Micron Technology (MU.US) has sent a clear signal by announcing it will gradually discontinue its Crucial brand, long popular with PC builders and gaming enthusiasts. Industry analysis indicates this reflects a systemic shift of chipmaker resources toward enterprise and AI-driven demand.
"Memory accounts for about one-fifth of the total component cost of a PC, so price increases hit manufacturers hard," analyzed Joost van Dreunen, a gaming industry professor at NYU's Stern School of Business. He estimates that if memory costs continue rising into 2026, console prices could increase by another 10% to 15%, while PC price hikes might reach 30%.
The memory crisis arrives at a particularly inopportune time for the Nintendo Switch 2, which just set sales records in June 2025. This device, hailed as the "fastest-selling game console in history," is at the beginning of its lifecycle, and cost pressures may force Nintendo into difficult choices.
According to TrendForce data, prices for DRAM and NAND flash modules used in Nintendo devices rose sharply in the last quarter. Citigroup analysts project an even grimmer outlook: DRAM average selling prices could surge 120% by 2026, with NAND prices potentially rising 90%.
"Unless memory prices fall significantly, Nintendo faces an 'absolute nightmare' regarding console manufacturing costs," noted Pelham Smithers, a UK equity analyst specializing in gaming. Nintendo's stock has already fallen over 30% from its peak last August and recorded its worst monthly performance since 2008 in December.
He argues that because the Switch 2, as a new console, is sold essentially at cost, Nintendo might even sell it at a loss. In contrast, its rival Sony's PlayStation 5, being a more mature console that already generates substantial profit, has "more buffer room" to absorb additional costs.
Industry research analyst Nathan Naidu estimates Nintendo may need to raise the Switch 2's retail price by 15% to offset rising memory costs. The console currently sells for $450 in the US, already making it Nintendo's most expensive hardware product ever.
"If it crosses the $500 threshold, it could be a decision they regret," stated Nick McKay, a senior analyst at Freedom Capital Markets.
Faced with cost pressures, console manufacturers have very limited options. Analysts say game consoles are typically sold with thin margins, so component cost increases are likely to be passed on to consumers. However, after a round of price hikes earlier this year due to tariffs, further increases could suppress demand.
Some manufacturers are exploring alternatives. Freedom's McKay suggested Nintendo might "reduce the Switch 2's built-in storage capacity, passing the cost to consumers forced to buy external memory cards." Emarketer analyst Jacob Bourne believes that if game spending shrinks further, manufacturers might choose to delay new product releases rather than risk price hikes.
Research firms are already adjusting their forecasts. Counterpoint Research estimates memory prices rose about 50% early this year, could increase another 30% in Q4 2025, and potentially rise a further 20% in early 2026.
Although major console makers typically lock in component supplies years in advance and mitigate cost impacts by extending product lifecycles, analysts believe these strategies may not be sufficient for the current situation.
TrendForce has downgraded its growth forecast for the game console market this year from 9.7% to 5.8% and expects a 4.4% decline in 2026. Data from industry tracker Circana shows game hardware spending fell 27% last month, with unit sales hitting their lowest level since 1995.
During this period, the average selling price reached a record high, reflecting both rising manufacturing costs and a lack of blockbuster games driving hardware upgrades. High-end console prices are already at elevated levels. According to company announcements, Microsoft's Xbox Series X retails for around $650, while Sony's PlayStation 5 Pro is close to $750.
Nintendo and Sony are set to report earnings next week, and the impact of memory costs on their gaming business profits is expected to be a key focus. Data from US market monitor Circana shows Switch 2 sales remain strong, making it the best-selling gaming hardware in the US for 2025, a figure Jefferies Group notes "dispels market rumors of 'weakening Switch 2 demand'."
Citigroup analyst Tokiya Baba pointed out in a recent report that Nintendo's "short-term investment appeal" could rise if quarterly results exceed expectations. He forecasts Switch 2 shipments reached 7 million units between October and December.
Furthermore, the release of *The Super Mario Galaxy Movie* could serve as another positive catalyst for the stock price. However, short-term optimism cannot mask long-term structural challenges.
"They are selling consoles well right now—that's not the problem," Smithers said. "The problem is the memory crisis, and with every dollar the price goes up, it gets a little trickier." For a gaming industry already grappling with inflation, tariffs, and slowing consumer demand, rising memory chip prices pose a new threat, potentially extending the industry's downturn into 2026.
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