Phones might get pricier next year. Thank the AI boom

As the smartphone market grapples with increasing prices, a key culprit is emerging: memory costs. While flashy cameras and expansive screens typically drive up the costs of smartphones, the surge in memory prices is poised to impact not just phones but also tablets and smartwatches. The ongoing boom in artificial intelligence (AI) is reshaping market dynamics. Major manufacturers are diverting resources towards AI data centers to meet soaring demand, resulting in a scarcity of memory for consumer devices. Yang Wang, a senior analyst at Counterpoint Research, described the situation as "brutal and crunched across the board." Recent findings from the International Data Corporation (IDC) indicate that the smartphone market is expected to see a slight decline of 0.9% in 2026, largely due to memory shortages. Projections suggest that memory prices could spike by 30% in the final quarter of 2025, with an additional increase of 20% anticipated early next year, according to Counterpoint Research. Tech giants like Meta, Microsoft, and Google have ramped up investments in data center infrastructure to keep pace with the AI demand. A McKinsey & Company report predicts that global investments in data center-related costs could approach $7 trillion by 2030. This shift in focus has led memory manufacturers such as Micron and Samsung to prioritize data center needs over consumer products, impacting the availability of memory for smartphones and PCs. In a notable announcement, Micron revealed its exit from the consumer memory market, citing the surge in AI-driven demand from data centers. Similarly, Samsung's executive vice president for memory, Jaejune Kim, noted robust demand for AI-related memory solutions in the third quarter, forecasting an intensifying supply shortage for mobile and PC applications. Analysts indicate that gadget manufacturers may face difficult choices regarding product launches and pricing strategies. TrendForce estimates that memory price hikes could increase smartphone production costs by 8% to 10% in 2025. While these costs do not always translate directly to higher consumer prices, they could lead to increased costs for budget Android phones, which often operate on thinner margins. Nabila Popal, a senior research director at IDC, emphasized that raising prices for cheaper models may be nearly unavoidable. The average selling price for smartphones is projected to rise to $465 in 2026, up from $457 in 2025, creating a record market value of $578.9 billion. However, experts anticipate a potential market adjustment late next year, which could stabilize or even lower prices as supply chains adapt. The semiconductor industry, accustomed to navigating rapid technological changes, may not have fully anticipated the swift rise in AI demand, leading to current supply and demand mismatches. Wang remarked, "In the semiconductor space, there’s always going to be a mismatch in supply and demand. This was kind of unexpected."