Memory chips and storage drives have become a major bottleneck in building artificial intelligence, prompting companies to increase capital spending. Semiconductor makers have warned that the supply crunch will get worse before it gets better, and Wall Street sees an opportunity. Quarterly results from hyperscalers like Alphabet and Microsoft released this week showed strong cloud revenues supporting capital spending that could top $1 trillion by the end of next year, with memory prices expected to be a major driver of those costs. Jaejoong Kim, Samsung’s executive vice president of memory, said Thursday that a surge in demand for memory has led to pre-orders for chips, and the supply shortage will widen into next year. “Our demand fulfillment rate is currently at a record low level,” Kim said. “Unlike in previous years, customers concerned about supply shortages have actually already brought forward their demand for 2027. So at this point, based on pre-booked demand alone, we expect the supply-demand gap between 2027 and this year to widen even further.” Tech CEOs are already feeling the pain of rising memory prices from chipmakers in their supply chains. “We believe the impact of memory costs on our business will increase,” Apple CEO Tim Cook said during an earnings call Thursday. Alphabet CEO Sundar Pichai described the upstream factors facing his business as “complex.” “Obviously, we’re dealing with a complex supply chain environment,” he said on Wednesday’s earnings call. Alphabet’s first-quarter capital expenditures were $35.7 billion, and “the overwhelming majority of this spending was… spending on technology infrastructure to support AI opportunities,” CFO Anat Ashkenazi said on a conference call. Meta Platforms is reportedly extending the shelf life of some of its aging servers because it is unable to obtain new servers due to a lack of memory chips and storage. The Wall Street Journal reported Wednesday that an internal memo said the company “did not anticipate the growth in hardware demand seen in the industry.” “Looking ahead to 2027, binding constraints include critical server goods, particularly DRAM and HDD.” DRAM is a type of fast, short-term computer memory, while hard disk drives (HDDs) are for large-capacity, long-term storage. Chip shortage creates opportunity These and similar product areas are areas Wall Street is watching closely for investors. “We believe investors are likely to continue chasing perceived high-tech winners in semiconductor and memory, as earnings from mega-cap tech companies have strengthened, adding further momentum to the AI theme,” Chris Seniek, chief investment strategist at Wolf Research, said in a note to investors on Friday. Micron Technology, SK Hynix, and Samsung Electronics are some of the largest manufacturers of not only DRAM but also NAND, another type of high-speed short-term computer memory that is central to the supply chain for AI infrastructure. SK Hynix and Samsung Electronics are two of the iShares MSCI Korea ETF (EWY)’s largest holdings. This fund will rise 67% in 2026. NAND maker SanDisk took street honors Thursday after beating profit estimates with third-quarter adjusted EPS of $23.41. Bernstein analysts said average selling prices (ASPs) are “now locked in,” shocking them “to the point of giving me a nosebleed.” “Revenues increased 97% to $5.95 billion (vs. consensus $4.72 billion), driven by an impressive 140% (qoq) ASP growth, slightly offset by low-teens shipment declines…EPS of $23.41 beat our consensus and bullish case,” Mark Newman and colleagues wrote to Bernstein. Melius Research’s Ben Reitzes said that “price pressures from DRAM and wafer shortages” are “huge” for downstream hardware builders, and NAND and DRAM component prices are a “huge headwind.” Seagate Technology and Western Digital are among the largest manufacturers of hard disk drives. Seagate stock is up about 22% this week, 68% since last month and almost 180% over the past six months. Western Digital stock has increased 43% in the past month. Analysts say capital spending in the memory sector itself will drive further expansion, while end-user demand from hyperscalers will support the expansion. Analysts at JPMorgan said Thursday that memory device testing is an area that could continue to benefit. “Memory testing represents the most undervalued near-term upside vector, with upside from capacity additions not yet fully reflected in estimates,” Samik Chatterjee wrote for JPMorgan. “The market is significantly underestimating changes in memory testing as greenfield fab deployments (Samsung P4, SK Hynix Yongin, Micron Idaho) begin to deploy testers on a large scale.”
