AI boom-fuelled chip shortage to inflate smartphone, gadget prices in 2026

For decades, smartphones' priciness was usually contingent upon smarts like high-end hardware, fancy cameras, giant screens and massive storage, but this is going to change next year.

As 2026 is approaching fast, smartphone prices are bracing for a sharp surge worldwide, thanks to soaring memory chip costs, a trend that has gained considerable ground since the outset of the AI boom.

This impending price hike is led by several interconnected factors, including growing competition for chips, manufacturers' changing production priorities, and the overall burden on the semiconductor supply chain.

AI data centres' huge chip demands

While the explosive growth of AI applications must be praised, it has led tech giants like Microsoft, Google, and Nvidia to invest heavily in data centres, which need advanced memory chips.

At the core of this issue are tech tycoons competing for the same chips that are used in smartphones.

“The memory shortage has now graduated from a component-level concern to a macroeconomic risk,” warned Sanchit Vir Gogia, the CEO of Greyhound Research.

This intense competition for chip resources is driving prices higher, making it more difficult for smartphone manufacturers to obtain the components they need the most.

Chip makers' shifting focus 

In the wake of rising AI demand, chip manufacturers are reallocating their production capabilities to prioritise high-bandwidth memory (HBM) used in AI applications, something that subsequently reduces the availability of memory chips for consumer electronics, including smartphones.

For instance, Samsung and SK Hynix, which dominate the DRAM market, have indicated that their focus will increasingly be on high-margin AI products.

“We see the rapid increase in demand for AI in data centres driving bottlenecks in many areas,” noted Peter Hanbury of Bain & Company, meaning that traditional memory products, essential for smartphones, are being deprioritised.

Supply chain constraints

Another factor that's causing chip shortages is the semiconductor supply chain, which is capital-intensive.

Building new manufacturing facilities often takes two to three years, making the production capacity sluggish and thus unable to keep pace with the surging demand.

“Basically, the suppliers worried the market was too optimistic, and they did not want to overbuild very expensive capacity,” explained Hanbury. As a result, many smartphone makers are now facing inventory shortages, with average stock levels for dynamic random-access memory (DRAM) plummeting from 13-17 weeks to just two to four weeks within a few months.

Implications for consumers

The adverse effects of this chip shortage extend beyond just higher smartphone prices, because economists have warned that the ongoing supply crisis could also slow down productivity in AI and delay critical investments in digital infrastructure.

“The AI build-out is colliding with a supply chain that cannot meet its physical requirements,” Gogia added. Not only does this situation threaten to inflate prices, but it could also lead to shortages of popular consumer devices, forcing companies to either raise prices or reduce features.

As a direct result of these factors, smartphone manufacturers have begun warning consumers about looming price hikes.

Xiaomi and Realme have indicated that they may need to raise prices by 20% to 30% due to the steep rise in memory costs that have registered increases of up to 60% in some segments.

“Some manufacturers might save costs on imaging cameras, some on processors, and some on batteries, but the cost of storage is something all manufacturers must completely absorb,” said Francis Wong, Realme's chief marketing officer.

The blend of high AI demand, manufacturers' strategies, and supply chain restrictions is taking a toll on the smartphone industry.

The impact of this acute chip shortage will likely be felt across the technology landscape, affecting not only smartphone affordability but also the availability of essential consumer tech components.

With tech giants scrambling for supplies and manufacturers adjusting their strategies, the future of smartphone pricing seems to be in shambles.

As memory chip prices continue to soar, consumers can expect higher prices for devices next year.