Memory Chip Pricing Continues to Decline, Impacting AI and Data Centers
Memory chip prices have been experiencing a softening trend, posing challenges for the growth of the artificial intelligence (AI) and data center industries. According to a report by KeyBanc Capital Markets analyst John Vinh, the pricing of benchmark eight gigabyte dynamic random-access memory (DRAM) modules dropped by 53% year-over-year and 5.6% month-over-month in July.
While the demand for AI servers is expanding, regular data center demand remains muted due to macroeconomic uncertainty and a cautious outlook on demand. Vinh expects memory prices to continue falling by a low-single-digit percentage in the third quarter. High levels of memory inventory are likely to persist in the cloud computing and enterprise markets, with limited recovery in China.
The majority of memory chips are used in computers, servers, and smartphones, and demand in these markets is deteriorating. Notably, Taiwan Semiconductor Manufacturing (TSM), the world’s largest third-party chip manufacturer, reported a softening of semiconductor demand. The company attributed this to a weaker global macroeconomic environment, disappointing economic rebound in China, and poor end-market demand in the smartphone and PC categories.
Although AI servers and applications rely on a newer type of memory called high bandwidth memory (HBM), it represents only a small part of the overall chip market. TSM did observe a significant rise in AI-related interest, but management emphasized that AI revenue accounts for just 6% of its total revenue, which is not enough to offset the drop in chip demand.
However, Vinh remains optimistic that memory price drops will eventually come to an end later this year. He believes that additional industry production cuts will lead to price stabilization in the third quarter. In the long term, Vinh predicts that secular trends, such as the adoption of 5G technology, data centers, and edge/endpoint devices, will drive memory demand.
Micron Technology, a leading U.S.-based memory maker, receives an Overweight rating from Vinh, with a $80 price target. Despite the current challenges, Micron Technology continues to hold promise in the memory chip market. On Tuesday, Micron’s shares were down 1% to $70.71 in early trading.
The declining memory chip prices raise concerns for the growth of the AI and data center industries. However, industry experts like Vinh believe that stabilization and eventual recovery are on the horizon. As the demand for AI and data centers continues to expand, there is hope that the memory chip market will regain momentum.
