Deep Dive: Why AI Is Raising the Price of Everything

**Zaid** (0:00)
Welcome back to The Rundown for another Weekend Deep Dive. Today, we are talking about the AI price shock that's got the whole market on edge. This week, Apple raised prices on multiple items, including MacBooks, iPads, even the Vision Pro. And then just hours later, Microsoft announced that they were raising prices on the Xbox. Both Apple and Microsoft are pointing the finger at the same thing, a shortage of memory chips driven by the AI boom. So in today's episode, we're going to take a look at why AI is making tech products more expensive, and if this could lead to an AI-related inflationary spike and become a problem for the macro economy. We got a great one for you today.
Let's dive in.
AI-related price hikes have been happening for tech products for the last few months now, but this week really caught people's attention after Apple announced some pretty drastic changes. Apple is raising prices by 15 to 25% for many of their products. The MacBook Air went up by 200 bucks. The MacBook Pro went up by 300 bucks. Even the MacBook Neo, which is their cheapest laptop Apple specifically built to be affordable, went up by 100 bucks and now starts at $700. And by the way, it wasn't just Macs. iPads also got hit with a price hike, and even the Apple TV and Vision Pro will be getting more expensive. Now, Apple did leave the iPhone price alone for now, but they did hint that more price hikes were coming, probably with the iPhone 18 this fall. Now, look, a lot of people were expecting Apple to raise prices at some point. In fact, CEO Tim Cook straight up told The Wall Street Journal last week that price hikes were coming. But I don't think many people expected the hikes to be so drastic. Now, Apple was quick to point the finger for the price hikes at the cost of memory. Tim Cooks told The Wall Street Journal that he's never seen anything like it in any area over 40 years, and he compared it to a 100-year flood. Now, we'll talk about why memory prices and shortages are happening in a bit, but let's first talk about the market's reaction to the price hike. Investors did not love it. Apple stocks suffered its worst day in over a year, falling 6% on Thursday. And this also dragged down other tech and AI-related stocks across the board. You know, I think this was a big wake-up call for the market because Apple has one of the best supply chains on the planet. So if they can't navigate the memory crunch without jacking up prices drastically, the market suddenly realized that this memory problem might be much bigger than anyone initially thought. And this could also start a chain reaction of other tech companies raising prices. In fact, just a few hours after Apple's announcement, Microsoft said they were raising the prices of the Xbox by $100 to $150. And this was actually the third price hike for the Xbox in the last 13 months. And just like Apple, Microsoft is blaming the cost of memory. They said the cost of memory and storage in their consoles have more than doubled in price and they expect it to double again by 2027 Now on a side note, I do find it funny that Microsoft is the one complaining here because they're one of the hyperscalers spending hundreds of billions of dollars on building AI data centers, which is leading to the supply crunch of memory. You know, it's kind of like the hot dog meme. We're all trying to find the guy who did it, Microsoft. But beyond Microsoft, Nintendo and Sony have also raised prices on their gaming consoles. Sony raised the price of the PS5 by $150 back in March. And Nintendo plans to raise the price of the Switch 2 from $450 up to $500 starting on September 1st. So now let's talk about why we're all having to pay more for our tech gadgets and what it has to do with AI.
All right, let's talk about memory. Why have memory prices gotten so expensive right now? Well, frankly, it's because of AI. See, memory comes in basically two flavors. The first kind is the regular boring kind of RAM that goes in your phone, your laptop, a gaming console. It's pretty much a commodity at this point. And for years, prices have gotten cheaper over time. The other kind of memory is the premium kind called HBM, or High Bandwidth Memory. Now, this is the memory that sits next to the AI chips that are packed inside AI data centers. Now, the key detail to understand is that both of these memories get made in the same factories. So you can already see what kind of problem this is gonna cause. Imagine if you were running a bakery, right? You could use your bakery to make cheap basic bread, or you could use your bakery to make elaborate wedding cakes. And it just so happens to be the busiest wedding season of all time. And because of that, everyone is willing to pay a premium for that wedding cake. In that silly example, most people would stop making bread and just go all in on making wedding cakes. And that's pretty much what's happening with AI and memory right now. All these memory companies are prioritizing making HBM because of the AI boom and big tech companies spending hundreds of billions of dollars on building AI data centers. These hyperscalers like Google, Amazon, Meta, and Microsoft are all projected to spend a combined $741 billion on AI this year. So these companies are willing to spend whatever it takes to get their hands on HBM and put it in their data centers. So memory companies like Micron are doing the rational business thing by using their factories to crank out as much HBM as possible, which means that less RAM is being made. And to make matters worse, HBM eats up roughly three times the factory space chip for chip compared to just regular RAM. So for every wafer of silicon, they shift over to AI chips, that wipes out about three wafers worth of normal memory that goes into devices like phones and laptops. Simply put, the AI companies out there are basically vacuuming up the world's memory supply and everyone else, like the phone makers, the laptop makers, the console makers, they're left fighting over for whatever's left. And unfortunately, it seems like the memory supply crunch won't be resolved anytime soon.