Citi Forecasts Memory Chip Shortages Widening Through 2031 on AI Demand

The Federal Reserve raised interest rates for the first time since July 2023 on Wednesday, a move that sent the S&P 500 lower before it recovered later in the day. Federal Reserve Chairman Kevin Warsh said at the Fed meeting that a wide-ranging set of data, including the labor markets, showed the economy has strengthened, giving the Fed confidence the economy can absorb the hike without falling into recession. According to the latest dot plot, 16 of 18 participants penciled in another increase this year, with four expecting two more. Rising oil prices are pushing up production costs and consumer prices, while the artificial intelligence buildout is driving memory prices sharply higher as hyperscalers demand scarce memory products, and Apple has said it will raise some prices. The annual inflation rate has not fallen to the Fed's 2% target, and the Fed declined to raise rates in July in hopes the situation in Iran would resolve, but it has not and inflation is creeping up again.

Bank of America analyst Wamsi Mohan cut his price target on Apple to $370 from $380 while reiterating his buy rating, after John Ternus hosted his first iPhone event as Apple CEO and unveiled the iPhone 18 Pro, iPhone 18 Pro Max, and the company's first foldable iPhone Duo. Mohan said the iPhone 18 Pro and Pro Max were not priced as high as he expected, with the iPhone 18 Pro starting at $1,199 and the Pro Max at $1,299, each $100 above the previous generation but below his estimated increases. Apple is absorbing part of a surge in memory prices driven by data-center demand, and management has guided fourth-quarter gross margins to between 47% and 48%, down from 50% in the third quarter. Deepwater Asset Management founder Gene Munster believes up to one-third of Pro Max owners could switch to the iPhone Duo, which starts at $1,999, and that the Duo could account for 10% of total iPhone revenue in 2027. The article notes Apple has 2.5 billion active devices worldwide and more than $39 billion in cash available to Ternus for product development and acquisitions.

UBS now expects artificial intelligence capital expenditure to reach nearly $1 trillion in 2026 before climbing to around $1.4 trillion in 2027, with surging memory costs accounting for most of the increase. The bank's updated estimates put total AI capex at $998 billion this year, almost double the $506 billion recorded in 2025, and forecast spending of $1.447 trillion next year. Memory is emerging as the main source of that growth, with UBS estimating memory spending will climb from $71 billion in 2025 to $367 billion this year and $923 billion in 2027, while other AI-related costs are estimated at $631 billion in 2026 before declining to $525 billion next year. That means higher memory costs will account for about 60% of the increase in AI capex this year and more than the entire net increase in 2027, and across the two years UBS calculates that roughly 90% of the nearly $1 trillion increase in AI capital expenditure between 2025 and 2027 will come from higher memory spending. Memory represented about 14% of total AI capex in 2025, a share the bank estimates will rise to 37% this year and reach 64% in 2027, and UBS said price-driven increases would add relatively little to real U.S. gross domestic product, instead representing a transfer of income and profits toward memory producers in Asia.