Memory-chip maker Micron Technology reported blockbuster earnings this past week, easily exceeding expectations for its latest quarter and offering outstanding guidance for the current one as well. The outsize performance highlights a key dynamic today in tech hardware: There is going to be a major memory shortage in 2026, even exceeding the pandemic-fueled chip supply issues in 2020 and 2021. This is good for the memory companies and bad for their customers, which cover a wide swath of electronic goods.
Memory chips have long been commoditized, and the business has been characterized by dramatic inventory and price cycles. The big memory makers -- Micron and Korea's SK Hynix and Samsung Electronics - have typically seen steep fluctuations in sales growth and gross margins.
In the second quarter of fiscal 2023, Micron's sales declined by 53% from the year before and gross profit margin went deeply negative. In this week's earnings report, Micron sales grew by 57% from last year, and the gross margin was 56%. For the current quarter, Micron projected revenue growth of 132% and a gross margin of 68%, getting close to Nvidia's industry-leading profit margin. For memory companies, which have significant fixed costs, fast-growing sales lead to even faster-growing profits.
But the artificial-intelligence investment boom has interrupted the typical cycle. AI servers sport a ton of memory. The Nvidia DGX GB300 server rack uses 20 terabytes of the very expensive high bandwidth memory, or HBM, in addition to another 17 terabytes of the more common double data rate memory, known as DDR. Other types of DDR are used in a range of electronics, including smartphones, PCs, and cars.
According to market research firm IDC, the global server market expanded by 61% in the third quarter to $112 billion. As capital budgets for AI data centers balloon, the big winner remains Nvidia, but the memory makers are right behind it. They are shifting as much capacity as they can to HBM because of the high prices and profit margins.
Micron sold out its entire HBM production for fiscal 2026, which ends in August, and the fiscal 2027 order book is rapidly filling. Hynix and Samsung are also sold out. To ease its shortage, Micron has gone so far as to shutter its long-lived consumer business, Crucial.
Along with the other two, Micron is trying to expand capacity, with its two highest capital-expenditure years coming this year and last. But these new factories won't come online soon enough to ease next year's supply crunch. The shift to HBM exacerbates shortages. For every one gigabyte of HBM, the memory makers lose the capacity for three gigabytes of DDR memory, a ratio that is set to rise with the next generation of HBM.
As with so many things in public markets today, much of the action revolves around a private company, OpenAI. In October, it boxed out other customers by signing a deal with Samsung and Hynix to reserve over a third of global memory production capacity for its proposed $500 billion Stargate AI data center project.
Complicating things, Nvidia has shifted to using low-power DDR in its DGX GB300 to save on server electricity budgets. This puts memory demand from Nvidia servers into direct competition with high-end smartphone makers, which use the same DDR chips. And it all comes amid a push to add more memory to premium consumer devices so that they can do on-device AI.
Micron's latest success hasn't caught investors by surprise -- the stock is up 218% this year -- but the coming shortages might.
Too many people chasing too few memory chips could bring a repeat of 2020 to 2021, when auto makers, despite robust demand, were only able to sell about 15 million cars in the U.S., well below previous years.
From 2020 to '22, there were 2,821 mentions of chip supply-chain issues in earnings calls, compared with only 459 in the three years since, according to Alphasense. Get ready for a replay. Next year, we're likely to hear a lot of management commentary on how memory shortages are increasing costs and depressing sales.
Counterpoint Research estimates that memory prices rose by about 50% sequentially in the fourth quarter, and will jump another 40% in the first half of 2026.
Apple and Samsung have the power and market position to keep making smartphones, but good luck to everyone else. "It will be tough for others that don't have as much wiggle room to manage market share versus profit margins," says Counterpoint senior analyst Yang Wang.
The Chinese manufacturers of cheap Android phones will be the most impacted, but even Apple and Samsung could choose to pursue mitigation strategies like downgrading other components. Counterpoint now expects smartphone shipments to decline in 2026 due to tight supply and higher retail prices.
Veterans of the pandemic chip crunch will find 2026 and maybe 2027 familiar -- and just as frustrating. But if the history of the memory business tells us anything, the eventual down cycle will be epic.
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