As Big Tech invests billions of dollars into building out artificial intelligence (AI) infrastructure, the global supply of memory chips is getting squeezed. Memory chips are also used to store data in gadgets such as smartphones, laptops and household appliances, and many experts fear the shortage could inflate prices or lead to scarcity in these products for Canadian consumers. Here, Financial Post explains what is contributing to the memory chip bottleneck, how this could impact consumer electronics and whether Canada’s smaller market stands to suffer most.

What are memory chips and what are they used for?

Memory chips are silicon-based

semiconductor

components used to store information such as random-access memory (RAM) used for running applications and cache storage in computers and smartphones, said Stefano Gregori, an engineering professor at the University of Guelph. “We cannot do computation or processing of data without a place to store the data.”

Gregori said memory chips are complicated to build because they are made up of a very large number of cells. “There are more cells in a chip than the stars in our galaxy.”

They are used in everything from personal computers and smartphones to household appliances, such as dishwashers and microwaves.

Gregori estimated memory accounts for about 20 per cent of the total cost of a device.

What is driving the shortage?

Accelerated growth in new technologies, which require greater amounts of data storage to function, has contributed toward a memory chip bottleneck, said Gregori.

Meanwhile, a new type of memory chip is reigning supreme: the high-bandwidth memory (HBM), which can transfer more data and at faster speeds and are quicker to produce, compared with conventional memory chips. HBM chips are also required to support advanced AI systems.

“There is massive investment, globally, in exploring the AI computer infrastructure, and obviously that infrastructure relies heavily on advanced memory chips,” said Namir Anani, president and chief executive of the Information and Communications Technology Council (ICTC).

As a result, chip manufacturers are pivoting toward manufacturing these higher-margin chips and producing less of the lower-capacity chips used in computers, cell phones and household appliances.

“If you’re a consumer electronics manufacturer like Apple or Samsung … you’re having a harder time getting these chips because the (chip) companies are making more money off AI data centre jobs than they are selling chips for consumer products,” said Toronto-based retail analyst Bruce Winder.

Why aren’t companies making more chips?

The manufacturing of chips is a “notoriously capital-intensive effort,” said Sourav Ray, professor and Lang Chair in Marketing at the University of Guelph.

In normal circumstances, a supply shortage could cause newer competitors to enter the market and fill the gap, Ray said. But a chip fabricator plant requires billions of dollars and months, if not years, before it becomes fully operational.

The market has been dominated by just three main players — Samsung Electronics Co. Ltd., SK Hynix Inc. and Micron Technology Inc. — limiting the ability of the industry to rapidly scale up production.

As well, Micron announced in December it would be exiting the consumer market after the second quarter of 2026 to dedicate production capacity to support AI data centre demand.

How long could the shortage last?

It’s difficult to determine how long this shortage could persist. “I don’t see it as a transient supply shock,” Anani said. “I think it’s a more of a global manufacturing pivot in AI that will be with us for a period of time, meaning that supply chain tightness will be there for a couple of years until it readjusts.”

Micron, Samsung and SK Hynix have warned the chip shortage could persist well past this year and Intel Corporation chief executive Lip-Bu Tan recently said there could be “no relief” until 2028.

Increasing demand for memory chips is a trend that is not going to reverse, Gregori said.

“These systems are going to require more and more data … so this increases the demand for memory chips.”

What does this mean for consumer electronics?

Memory prices will skyrocket by 40 to 50 per cent in the first quarter and another 20 per cent in the second quarter of 2026, according to

Counterpoint

Technology Market Research.

University of Guelph’s Ray said he expects prices of consumer electronics to climb by at least 10 to 20 per cent, but this isn’t the only impact he foresees.

Many smartphone companies frequently introduce new models with higher capacity, he said. With the memory chip shortage, Ray predicted some delays in introducing these new models, or production of new models with reduced capacity.

Winder said some larger consumer electronics companies that have high margins might absorb some of or all the higher costs to avoid passing them onto consumers. However, smaller companies or those that offer products at lower prices are more likely to transfer these costs at higher price points to consumers.

“If the chip inflation does keep up, (larger companies might) slowly increase the price of their devices,” Winder added. “But they’re also balancing a very tight rope because consumer confidence is not high right now.”

Global smartphone sales could shrink by more than two per cent this year due to rising memory costs, according to a December

forecast

from Counterpoint.

Some products may be more price elastic than others, said Ray. For example, demand for personal computers and tablets used in everyday work might be less impacted by higher prices than, say, a smart toaster that could be replaced by a regular toaster.

“If you have a legacy technology that you can carry and you think the price increase (of a new product) is unfair, don’t pay that price,” said Ray.

Anani said he expects to see higher prices take effect in a matter of months.

Could the Canadian market be worse off than the U.S.?

The memory chip shortage could exacerbate higher prices and shortages in Canada, which is a smaller market compared with the U.S., experts said.

“When demand outweighs supply, normally your biggest customers get shipped first,” said Winder. “We’re not at the top of the pecking order.”

Ray said he expects U.S. market demand will be prioritized first over Canada (with the exception of any contractual obligations). This could either trigger higher prices for consumer electronics in Canada or mean Canadians will not receive the newest or most upgraded products right away, he said.

Ray estimated consumer electronics are about 10 to 20 per cent more expensive in Canada compared with the U.S.

“Ultimately, we’re reliant on larger organizations and companies in memory chip development, like Samsung and Micron and others in that landscape,” said Anani.

Could Canada benefit from the situation?

However, Anani said the memory chips shortage presents Canada with a rare opportunity to become “indispensable” in the system, as Canada excels in packaging.

He is advocating for a national semiconductor strategy through which Canada increases investments in the industry, builds out its fabrication and packaging capacity and strengthens relationships with major manufacturers to manage pricing.

“We can leverage the potential of this landscape and increase our competitive advantage,” he said. “In this market, we should be a player, rather than a consumer.”

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