Ray Wang on How AI Is Causing DRAM Prices to Surge

For years, DRAM -- or Dynamic Random Access Memory -- was kind of a sleepy, commoditized aspect of chip industry. Growth was steady, but modest, and prices just generally drifted lower. Suddenly all that's changed. AI has created voracious demand for DRAM and consumer facing companies are being forced to either curtail supply or raise prices due to exploding costs. But what is it about AI that consumes so much memory, and when will the market rebalance itself? On this episode, we speak with Ray Wang, an analyst at SemiAnalysis, who recently co-authored a report titled, Memory Mania: How a Once-in-Four-Decades Shortage Is Fueling a Memory Boom. We discuss the implications of this memory boom, how producers are responding to surging prices, and whether or not the Chinese companies in the space can catch up to the Korean giants, such as Samsung and Hynix. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee, so search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:07Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:51Speaker 02

  Bloomberg Audio Studios. Podcasts, radio, news.

• 2:06Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:11Tracy Alloway?

  And I'm Tracy Alloway.

• 2:13Joe Weisenthal?

  Tracy, you know what I'm worried about? I don't know if I'm worried about it, but it kind of feels like the direction things are going, which is that like all energy, industrial commodities, anything that we use for any purpose is just going to like feed AI beast and us humans, we're just gonna get left out in the cold. They're like, nothing for you. We gotta like feed, we gotta feed it all to the AI. And, and maybe in 10 or 20 or 50 years, the AI is so powerful, they're just like, why, why do humans get any of this? We just, we should keep it all to ourselves.

• 2:46Tracy Alloway?

  A legitimate concern, I would say. I mean, to some extent, we are already seeing this crowding out effect, right? So, energy prices in certain areas have been going up and most recently, memory chip prices. So, this has been all over earnings recently. You had companies like Apple saying that because of a crunch in memory chip supply, they might have to either raise their prices or like cut down on the amount of phones they use. Nintendo, like if you pull up a chart of Nintendo shares right now, they are just getting hammered and supposedly it is all because of this memory chip shortage. By the way, do you remember, do you remember like buying your first PC?

• 3:28Joe Weisenthal?

  Yeah.

• 3:28Tracy Alloway?

  In like, you bought one before I did, I think, but mine was in the mid 90s.

• 3:32Joe Weisenthal?

  Yeah, yeah. I think that's about when I got one.

• 3:33Tracy Alloway?

  Do you remember how much memory those things had?

• 3:36Joe Weisenthal?

  Oh, like nothing?

• 3:37Tracy Alloway?

  Yeah, like I looked it up, something like less than 10 megabytes for a bunch of them. You know how much PCs have nowadays?

• 3:44Joe Weisenthal?

  Actually, it's a good, I have no idea.

• 3:45Tracy Alloway?

  I think it's, let's see, 16 gigabytes.

• 3:49Joe Weisenthal?

  Yeah.

• 3:49Tracy Alloway?

  Isn't that crazy?

• 3:50Joe Weisenthal?

  It is, it is really crazy. I remember like, do you remember zip drives?

• 3:54Tracy Alloway?

  Yeah, oh my god.

• 3:55Joe Weisenthal?

  And, or like, and there were all these special, you know, obviously various memory peripherals that you could buy and they came in sort of dedicated cartridges and stuff like that. I think they were called zip drive. Yeah, I think, right? There were zip drive. I don't remember.

• 4:08Tracy Alloway?

  Yeah, yeah, it was, yeah, that's right.

• 4:10Joe Weisenthal?

  Buying additional Memory, storage, etc. It used to be this big part of the consumer process. I'm actually glad, you know, my son really wants a Nintendo. But if they can't produce them anymore because they can't get the memory, then I'll say, sorry, no video game.

• 4:23Tracy Alloway?

  That's so mean. You're gonna have to sit him down and be like, I'm so sorry, son. There's this thing called a supply shortage. I'm gonna use this as a learning opportunity to explain how global supply chains actually work.

• 4:34Joe Weisenthal?

  Totally. You know what the other, the one interesting thing is, if you look at spot DRAM prices, which we have on the terminal. This is, I think, maybe the interesting dynamic. There's a lot of AI-related things on the terminal that have been surging for several years. Most notably, some of the big chip companies, Nvidia, etc. If you look at a chart of spot DRAM prices, the big surge wasn't until late last year. And then, since then, it's gone nuts. So for a long time, even as this AI story, the AI meme, the AI industry like propagated. People were really paying attention to that, that area. And then suddenly it's just gone like, you know, the

• 5:08Tracy Alloway?

  Haywire?

• 5:09Joe Weisenthal?

  Haywire, yeah. And so obviously, huge supply-demand imbalances. We need to understand what's going on because I think the, the stakes are, you know, it's getting so much. As you mentioned, a lot of companies are losing out pretty big. Others are making a lot of money.

• 5:21Tracy Alloway?

  Yeah.

• 5:21Joe Weisenthal?

  We sort of need to get a handle on what's going on with memory.

• 5:24Tracy Alloway?

  Let's do it.

• 5:25Joe Weisenthal?

  I'm really excited to say, we really do have the perfect guest. We are gonna be speaking with Ray Wang. He's an analyst at Semi Analysis, and he's recently published a brand-new report on exactly this topic. Talking about a memory supercycle and so forth. So truly the perfect guest, as I mentioned. He's a, comes to us from Korea. Ray, thank you so much for coming on Odd Lots.

• 5:48Speaker 04

  Hey, nice to be with you both, and thanks for having me.

• 5:50Joe Weisenthal?

  So many questions. Really appreciate you joining us. Let's just start with the basics. Like, what is it about AI, or what is going on? What is the core idea such that demand for memory in various forms is absolutely, seem to be booming right now? In a way that must have caught the supply side of the equation very off-guard?

• 6:10Speaker 04

  Yeah, I think, you know, to really look at kind of the sort of imbalance, supply-demand dynamics, really, we want to look at like, you know, what happened a few years ago, right? Because, you know, your capacity is like your investment a few years ago. And what's happening, you know, like in 2022, 2024, it's, it's sort of a down cycle, right? Because remember, during the COVID, all the companies are trying to flock in to buy tons of DRAM. Right, and you know, there's a lot of purchases there, right? And there's sort of like up cycle, right? But it's like a very, very short up cycle. Because like when the COVID gradually getting better, right? You actually don't need that much DRAM. And back then, the company would be like, hey, you actually don't have a sustainable demand, right? So they don't want to over invest to expand their capacity.

• 6:53Speaker 04

  And when you go into the down cycle, your CapEx typically being very constrained. Very like, you know, company from their perspective, they try to be conservative. So that leads to twenty twenty four and twenty five that your incremental wafer capacity that goes to DRAM is actually quite limited. But what's happening on the demand end is actually the demand was accelerating so fast, right? You know, it's, you know, one way to look at it is to look at a media's earnings, right? And if you, when you, when you on one side, your demand is accelerating so fast. On the other hand, the supply side, your supply just couldn't catch up. And there, there's more nuances behind, behind the supply, right? Because before, they are just supplying all the commodity DRAM, like DDR, LPDDR, right?

• 7:35Speaker 04

  The all the memory that goes to PCs, goes to laptops, goes to your mobiles, goes to Nintendo switches, right? But you know, what's happening, you know, in this AI is like, there's a new thing called HPM. The thing about it's like a specialized memory for, directly for air accelerator. And that memory is extremely DRAM wafer intensive. To give you a sense, right? You know, on the same wafer basis, you can produce three more bits if you do commodity DRAM. But you can only produce one bit of HPM, right? And that ratio will actually going higher when you go to HPM four, HPM five in the next few years, right? So in that way, on the same wafer basis, you can, you can only produce that much HPM.

• 8:17Speaker 04

  And right now, what's happening is like, hey, this HPM is super, super profitable. And why not we dedicate more wafer for HPM? But so here's the problem, right? You only have that much wafer and you need to try to do everything. So that's finding out a lot of the supply going to the commodity DRAM, right? So we have, we have sort of both things is happening. And essentially comes down to like, I think really, you know, things start really kind of people aware. It's like probably Q2 2025 that people realize, hey, like, you know, we actually couldn't buy enough like enough DRAM, both enough commodity DRAM and also HBN for their demand.

• 8:53Tracy Alloway?

  So you mentioned the, the C word just then, oh, wait, not that C word, commodities. You mentioned commodities. And when I'm reading these articles about a memory chip shortage, people use commodity type language, right? So you hear super cycle a lot. You hear commoditized chips versus, I don't know, other types of chips. Are they customized? I don't think so. But anyway, how much does this particular industry actually resemble a commodities like industry? And then maybe explain a little bit more why historically it has been really, really cyclical.

• 9:27Speaker 04

  Yeah, so I think a couple of reasons, right? You know, fundamentally, the sort of the cost per bits for DRAM was actually coming, coming down every single year significantly, right? Even in the most recent year was also coming down, but like the standard they are coming down for every single year is actually slowing down like, you know, over the past like 10, 20 years, right? So the cost was keep going down, right? So the cost is hard to become like, um, you know, the most competitive part, right? Another thing is there's the, you know, there's sort of the committee that let's set up the standard for DRAM, right? So, well, you are doing the similar products, right? You're just having, you know, oh, this is kind of a little better power efficiency. The performance was a little better, right, here and there.

• 10:08Speaker 04

  So like, it's hard for, you know, a memory supplier to significantly differentiate their products compared to their competitor, right? So essentially, what's the, what's the things that will compete in the end will be the market prices, right? And then when you are selling the similar products and you are talking in similar audience, right? That's sort of like other commodity, you know, sort of semiconductor commodity products to me. And I think those are the two main characteristics I'm seeing for DRAM. And I think that's a little, little different for HBN.

• 10:39Joe Weisenthal?

  Tell me, explain this. So there's commodity DRAM and then there's HBM. What HBM is a type of DRAM? Is that what you're saying?

• 10:49Joe Weisenthal?

  Can you explain this further and like sort of yeah, walk us through what the commodity version and why there is this thing called HBM, high bandwidth memory, what that's all about?

• 10:58Speaker 04

  Yeah, yeah. So essentially the emergence of HBN is really go down to a kind of model layer because you know, this is when you like try to scale and start scaling your AI model, right? Your thoughts is increasing significantly every single year, right? Because your computers increased a lot faster, but your memory bandwidth was actually sort of it's increasing, but it's very limited, especially if you are using the memory from kind of traditional commodity DRAM, that the bandwidth is actually very limited. So for memory supply, they are thinking, hey, like, how can we expand the bandwidth to supporting the memory that going to scale the AI, right? So let's consult HBN. So the way they do HBN is so they are stacking multiply eight

• 11:42Speaker 04

  or twelve or even in the future sixteen DRAM dice together, right? So that making you be not have like essentially having higher bandwidth and have enough capacity to support AI developments over the past few years and in the next few years. And that's very different, right? You are stacking all this dice together compared to a hey, I just we just have like one DRAM products as a chip, right? And also that also comes out to a point that HBM manufacturing, also the packaging, but both front end and back end is a lot more complex compared to commodity DRAM. And that's why I say commodity DRAM is more like commoditized, but I think HBN is less so because it's a lot more complex, right? And for supplier, you can actually differentiate either from the front end

• 12:24Speaker 04

  or back end technology. And when your yield is better, right? It gives you better margin, better ability to compare, compete with your competitor, right? And you know, stuff like thermal, things like that is the thing that will really stand out, right? And that's very different commodity DRAM.

• 12:39Tracy Alloway?

  Getting more and more layers on HBM, it kind of reminds me of the razor wars where like, you know, Gillette would unveil a three blade thing and then the next day someone has like 12 or whatever.

• 13:05Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 13:31Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 14:13Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 14:54Tracy Alloway?

  So if I'm a company like Nintendo, how am I actually purchasing chips? Because I think this is going to be important when we talk about what's going on right now. But do I have like a forward contract with a major supplier? Or do I have, I don't know, a warehouse full of chips that I bought previously? How do they actually manage that?

• 15:15Speaker 04

  So there's a couple of ways they do it, right? They will do it in terms of like, they will do it different way, like in different environments and also different vendors, right? So it's hard to say like, hey, this is exactly the way they do it. But typically, I think you can think about like, hey, this is amount of the chips we're going to purchase in the next four months. And this is amount we're going to commit, right? And we're going to sign the contract pricing, whether this term will be four months or for the LTA, you can go as long as like to a year or even two years, right? So that's typically the way you think about it. But typically, you'll be like, hey, we signed this contract for four months, right? And by the end, sorry, for three months, for a quarter. So by the end of the quarter, you negotiate a new contract pricing for the next quarter. So that's typically the way it work.

• 15:58Speaker 04

  But you know, the problem for right now is for consumer electronics. It's like the pricing probably is sort of, I will say, secondary. Because if you couldn't secure value, you couldn't even make any money, right? So number one is securing value. Whether that, you know, make sure that fits to the demand outlook you are seeing. Two is whether you can negotiate the best pricing you can. But given the overall pricing environment, so it's low volatile, was so asking so much. It's hard to like not taking some kinds of margin impacts. Because essentially, you know, you try to get a chips, right? And you cannot just, you know, get too much away from your vendors.

• 16:35Joe Weisenthal?

  Yeah, I want to get more into the demand destruction element because I think this is very important to think about where the equilibrium is going. Just to clarify, what is it about AI specifically? Is it in the training? Is it in the inference? Where specifically in the process of building out AI services does this voracious demand for DRAM come from?

• 16:56Speaker 04

  So honestly, to be very honest, I think it's everywhere. Okay. Like, right, you know, AI training, you need tons of HBM, that just everyone know, right? You also need a lot of the CPU DRAM. And that's LPDDR and DDR that goes to the server. You also need HBM, right? So that's on the training part. In the inference, you also need HBM, right? And you also need the CPU DRAM to go through those workloads, right? But you know, the main one will be the HBM. And even the inference, right? Right now, they are separating to pre-fill and decode. And you know, I think eighty percent, I think right now, like, the most important thing will be decode, right? And decode is super, super like memory bound and memory intensive. And HBM, the memory importance of there was just, will only increase to my understanding,

• 17:40Speaker 04

  especially given the long condensed window continue to expand. And the inference usage and adoptions continue to going up, right? So I think those are typical way I would think about those, right? And the last thing is, I think a lot of people talk about this days about agentic AI. Yeah. Right? Agentic AI, you want to power those, you need a lot of CPU, you need a lot of CPU base server, right? So what's, so what's including in the CPU server? There's a lot of DRAM in there, right? And a lot of agentic will also mean you need a lot of inference as well, right? And that go back to my previous point, you need a lot of HBM and DRAM, right? So I will say like kind of DRAM and I got HBM and DRAM is kind of everywhere. And we kind of talk about storage, but storage is so everywhere, you know, in doing this process.

• 18:21Tracy Alloway?

  I have a basic question, but why does AI need a lot of memory at all? So you just explained, you know, it's important for inference, it's important for training, whatever, but like, why?

• 18:35Speaker 04

  Yeah, I think, I think this, this need to like goes down to the, to the model layer, right? Because essentially, when you are trying to train, let's say you want to train the model, right? And then you need, you just need the pure tons of data, you need to just write tons of data there to train your model. And then for the inference in part, like you need. One data after another to kind of compute one after another, sort of a chain of sorts, right?

• 18:55Joe Weisenthal?

  Yeah.

• 18:55Speaker 04

  So to do that process, how can you keep the previous data you process to keep it in there and the process to another data that coming out after, right? So that's why you need enough memory and go back to my previous point, right? The long context window basically means like when you're, when the things that you are processing longer and longer, right? Like, how can you, how can you have enough memory to process those, right? And you know, one for the good example, if you use GPT, you guys definitely remember, right? You know, back to GPT, which just coming out. Uh, people are just like, hey, like, what's the weather, right?

• 19:25Joe Weisenthal?

  Yeah, write a poem.

• 19:27Speaker 04

  People right now is or last year, people are doing like, hey, can you write a, um, twenty page report, how cancer can happen on people, right? For example, then we'll give like twenty page report and they will wait like five minutes, right? And so if you think about the process, like they do all the calculation, all the researches. And also give you the output tokens that the, the sort of the, the answer you get from your prompts. That's significant way longer than the prompts that you are given, right? And that's also a lot longer response that you are getting when you go back to the GPT three. And remember the usage, we know back to GPT three was, it was the, the, you, I forgot the monthly daily users. But right now it was, I think the use of GPT was eight hundred million, right?

• 20:09Speaker 04

  And we are not included, the users for the Gemini, for cloud, for XAI, right? So if you multiply those effects, I think the memory demand is very significant and it's very, uh, clear to me.

• 20:21Joe Weisenthal?

  Yeah, it's really interesting. I saw someone, people were talking about this, but it really strikes me in my own usage of AI. Just basically how much more I use it as capabilities have grown. Like it was sort of cute in late twenty twenty two, it's like, oh, get it to write a poem about this. And it was like, okay, and then I would go, you know, several weeks sometimes without having anything to query. And then, you know, these days, like I'm using it all the time, like trying to do things with code or scrape data, et cetera. So to just overall token consumption has grown massively with increased capabilities. All right, let's talk about the demand destruction element.

• 21:01Joe Weisenthal?

  Any commodity is going to be, the price is going to be a function of supply and demand and eventually prices get high enough such that certain forms of demand just are no longer economical and it's like, you know what, we're just not going to make as many video games or cameras or whatever else uses a memory. Are we starting to see any of that yet such that certain uses and consumption of memory?

• 21:23Tracy Alloway?

  So Joe doesn't have to buy a Switch for his son?

• 21:26Joe Weisenthal?

  Yeah, that's right.

• 21:28Speaker 04

  Yeah, I actually bought a Switch recently. So the price-

• 21:31Joe Weisenthal?

  You should resell it. Are you gonna resell it?

• 21:35Speaker 04

  I don't know. We'll see how the arbitrage there works. But I think, I think we're already seeing a lot of impacts actually. But you kind of, you kind of vary in different types of product, right? In PC, we are surely seeing that Dell, Nanobo, Answer, Asus, they are all having a price hike for kind of different products, right? And, you know, on the kind of demand side, you're also seeing that, I think, for the Chinese smartphone market, right, a lot of analysts, a lot of the research firm, right, a lot of the company was saying like they are cutting off their smartphone outlook. For example, I think MediaTek recently left earnings, right, they are saying they are cutting off the mobile to, I think it was 12 or 10 to 15% of the 2026 outlook. That's very significant, right? You're saying

• 22:19Speaker 04

  this year is supposed to be 100 million, but it will essentially goes to 90 million, right? That's very significant. So I think we are already seeing that, but it kind of vary in different places, right? Apple will be a great example here because they are saying, hey, like, hey, we have all the price hike, right, but we actually managed pretty well. They are saying the real sort of meaningful margin impact will actually show up in the second half 2026 instead of like the first quarter or second quarter. I think those are some of the things I'm seeing. So it's definitely already showing out in the market, right? I think what you can expect this year will be two things. One is sort of demand destruction in PCs, right, the broader consumer electronics. Or the dispac, whether it's the memory dispac, that's very straightforward, but also the camera, right? The camera is also very important.

• 23:04Speaker 04

  I'm hearing some of the dispac on the camera as well. And you know, also on the sort of the, what we call a delay launch, right? Because you don't want to launch your new products that have higher price than initially thought, which will impact your new launch performance, which usually the new launch product have better ASP, better margin compared to your previous generation products, right? I think those are the things we're gonna see in the coming months, in the coming quarters. And I think it will show impacts and people will start feeling it.

• 23:32Tracy Alloway?

  Joe, do you think we're gonna get people like stripping old Nintendos for memory chips? Like, remember how during the commodity super cycle in like the early 2010s, I guess, there were all those stories about people like stealing electricity wires?

• 23:47Joe Weisenthal?

  Yeah, it happened again in 2021, too, I think. Yeah, we might, we might get some of that.

• 23:51Tracy Alloway?

  Well, actually, on that note, is there like a short term fix for this problem? Either in terms of design, maybe you can make the products more efficient in some way so that it needs less memory? Or recycling old memory chips? I don't know.

• 24:07Speaker 04

  Yeah, I think, you know, from the demand side, it's a lot difficult, right? From an OEM perspective, right? There's only that much you can do, right? You can dispac, right? But I don't think that addresses the fundamental issues, right? You are just dispac your products and so you can ship. But that there is double-edged sword, right? When you downgrade your products, that actually look bad compared to some of your peers, who doesn't dispac, right? And make your product less competitive, that impact your final sort of the quarterly or annual shipment. I think what's need to be addressed or what can be done is probably on the supply side, right? So supply side, we are mainly talk about couple vendors, right? The Micron, Heineken, Samsung. And for legacy ones, right? You have Winbound, Nanya, and China, like CSMT and JHIC, right? Those people.

• 24:52Speaker 04

  So I think the most direct way right now this year, because this year, the really challenge is there's a clean room constraint. So clean room constraint is basically you have limited space that you can put all the equipments and start manufacturing chips in the fab, right? So you have clean room shortage in all three major memory makers, right? So your incremental wafer capacity coming online for 2026 will actually be quite limited.

• 25:17Speaker 04

  So in that sense, how can you produce more bits, more DRAM bits, while having only limited incremental wafer capacity? The only thing you can do is non-migration. So in DRAM process now, you have the most advances right now is 1C, right? Going down, I have 1B, 1A, and 1X, blah, blah, blah, right? And, you know, I think right now they are trying to do is migrate as much as they can to 1B and 1C, which on the same wafer basis, you are produce a lot more chip, a lot more bits of compared to the legacy now, right? So do doing that way on the same wafer basis, you can produce more bits. So that should produce more supply, even though your wafer capacity is constrained. But the challenge is two things.

• 26:02Speaker 04

  One, how fast you can run about this non-migration, right? Non-migration is typically difficult. Well, I won't say difficult, it's, you know, it takes time, right? Uh, for to go into the most advanced now, right? You need EUV machine, right? You need all different kind of manufacturing processes, right? And not every fab can already prepare to doing that, right? So it will take time to run by all those production for the new advanced nut. Also, you are having the challenge to like, hey, okay, I want to do non-migration, right? But how are we going to balance the capacity with HPM? Again, that's another issue you want to kind of think about, right? Because some of the HPM process now, uh, is actually using, for high-end, they are using 1B. So let's actually the advanced process, all right? So even you are including 1B, but you're at a certain time you want to do more HPM.

• 26:46Speaker 04

  So like the increased here is actually quite limited. So I think also the way can potentially fix the issue, but you know, from our house view, right? Even we factor all those in, I think this year we're still going to have see quite significant shortage.

• 27:00Joe Weisenthal?

  One of the themes that comes up when we talk about any commodities super cycle is that sure, higher prices will eventually elicit more production, more supply. But in the meantime, you know, there's a sweet spot for the existing producers, especially when you have just a small number of producers that can produce at scale. They enjoy massive profits, right? And they're sort of going to be reluctant to build out new fabs because that's money going out the door. It also means lower prices. So there's always this sort of Goldilocks period for them before the supply comes online, where they're just raking in profits. What do we see is the industry's impulse to invest? And I'm curious, like, you know, whether it's Chinese producers, are they in a position to

• 27:43Joe Weisenthal?

  potentially undercut the profits of the Korean makers? Are the Korean makers seeing themselves as having a long window where they can enjoy large profits before they have to invest? Like, what is the thinking on the supply side about those big capital outlets?

• 27:58Speaker 04

  Yeah, that's a very good, like, strategic question. I think, you know, every management will probably give you sort of different answer, or on a high level, probably same. But I think in general, right, like, you know, looking at like historical cycles, like, you know, if we are seeing quite sustainable demand in the next few years, and then clearly the capacity couldn't catch on to demand, they are going to expand the capacity in some time, right? It probably not gonna be like, hey, we announcing 2026. The capacity really coming online, like meaningfully, is probably 2028. So they will, I think they will still announce, right? And we are seeing that from Micron, right? Oh, Micron is announcing a new NEM fab in Singapore, right? They are expanding, they have two fabs currently, it's under construction in US, right? Also doing tons of non-migration and recently acquired the new fab from PSMC, which is

• 28:43Speaker 04

  a Taiwanese chipmaker, right? And then all those move, you are already seeing some sign of that. And another side you are seeing is the CapEx, right? Both the Hynek, Samsung, and Micron, their direct CapEx has actually increased quite significantly this year, and expect similar trend in 2027, given, I think, you know, they're gonna probably try to expand more capacity and invest more in both HBN as well as the equipments that go through advanced equipment, right? That go back to the point I was talking about the non-migration. If you want non-migration, you need to use more advanced equipment to produce more advanced chips.

• 29:17Tracy Alloway?

  Yeah, it really does remind me of the oil industry, right? Where like, there's a bust in the underlying commodity price, and everyone starts talking about being disciplined on CapEx spend, and so it takes a while to ramp up. I wanted to ask about, I guess, the balance between HBM and other types of DRAM. How are people or how are the actual chipmakers thinking about that? And is there, is there a chance that because HBM, my understanding is that it has higher profit margins? Is there a chance that everyone just pours into HBM and kind of leaves the more basic stuff in the dust?

• 29:58Speaker 04

  Yeah, so actually, you know, it's very interesting. I think what probably since 4Q, we wrote about this for our institutional client. It's that, you know, the margin, well typically, we think HBM has higher margin, right? Which is, which is definitely true. But what's happening, you know, we see all this like spot price, contract price going up so much, right? The margin of the commodity DRAM right now is actually higher than HBM. So here, that created a real dynamic that Tracy, that you talk about it. Because when your margin of commodity DRAM is actually going higher, why would you make more HBM? Like, why, right? But I think if you really think about like a long-term perspective from a memory supplier, right? Before the all air boom, your demand is really driving from couple A market, right?

• 30:41Speaker 04

  PC, mobile, automotive, industrial, blah, blah, blah, right? HBM right now is search as a new growth driver for the company, which we believe will last for the next few years, right? And for the memory supplier, they're thinking the same. And if you are now continuing to push your capacity, push your technology, when you're lagging behind, it's hard to coming back. And then go back to my previous point that this is an area that is relatively easier to differentiate your products, to get more market share more meaningfully, right? So I think some memory makers are very, very value HBM. Even though right now the margin of commodity DRAM is higher, right? They will, I think they will still invest quite a lot on HBM.

• 31:23Speaker 04

  And they will do their best to sort of balance the commodity DRAM market. But I think, you know, I think this year, at least the number I'm saying is still quite significant shortage, yeah.

• 31:33Joe Weisenthal?

  How do the Chinese producers compare to the Korean producers? Is there a, is there a gap?

• 31:40Speaker 04

  Oh yeah, I think there's definitely the gap. I think like, you know, if you look at the memory in general, I think it's probably three years. Three year gap. Yeah, and it's probably four years, I would say, that this is very like, you know, timeless. Sure. As of today, you know, who knows what they're gonna have in the future, but I think, you know, there's definitely a gap. You know, when I think about the competition pressure from Chinese memory makers, we always want to like, kind of separate the Chinese market and also the ex-China market. That's also the memory supply whilst looking at it, right? So Chinese market is probably about 25% of the global DRAM demand. So really, the competition is happening in China, because for the leading Chinese memory supplier like CSMT, for example, I believe like 90% or 95% of the revenue is coming from China and Hong Kong.

• 32:25Speaker 04

  So meaning, you know, most of the DRAM is really competing Chinese market, competing with Microl, Heineken, and Samsung. I think I would say that right now on the events, on the high end, right, I think it was still dominated by three memory makers, but CSMT are gaining too momentum, right? Why? And they are probably getting sort of a low-end and medium products. And they also benefited by Chinese government's policy in terms of the self-sufficiency drive to, you know, whether it's for the commodity DRAM, also right now they are pushing for HVM developments that support Chinese AI hardware.

• 32:55Tracy Alloway?

  So if there's a shortage, and it seems like the shortage is going to be with us for some time, how are the chipmakers actually allocating what supply they have? Does it go to, you know, the company that I think is going to be really big and important in the future? Like, I don't know, an OpenAI or something, or does it go to an existing customer that's been buying in volume from me for years?

• 33:20Speaker 04

  Yeah, I think there's no doubt to me that, you know, some of the highest, highest tier customer will get a volume for sure. Of course, there's the more complex pricing negotiation behind, but I will, I will say like, the volume will be, still be the most important thing. And I think that's probably what they're gonna do, right? And you know, besides thinking about like a by customer, I will think about kind of by sector. I will say the server DRAM and HPN, two things together will be the top, top priority. Because you know, if for the whole A market in DRAM, we are seeing actually HPN and server DRAM together, it's probably like more, it's more than half of the DRAM market, right? And that's important and it's going so fast, right? And it's unlikely mobile, right? Mobile is kind of flat.

• 34:05Speaker 04

  The mobile demand is really driven by the increased DRAM contents in the mobile, which is quite limited, right? If you buy iPhone over the past year, you know, like they are actually quite limited on their DRAM content increase. So I think, I think those are the top two priorities for the memory company to focus on in the next two, three years. And we'll see what happened, you know, after like second half of 2027 or 2028, if there's some structural change. But I think server DRAM and HPN will be the top priorities.

• 34:48Speaker 01

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• 36:11Joe Weisenthal?

  You know, the other day, I was very lazy, which is not rare for me. Just that one day? Just one day. And I used Claude Code. You know, I have a bunch of screenshots on the desktop of my computer. And it sort of makes my desktop look like a mess and I can't see folders. So I'll like drag and drop them and put them in the recycling bin. And I was very lazy. And I put it to Claude Code, I said, "Clean up my desktop. Clean up my desktop." And I was like, "This is so insane. I'm using, you know, Anthropic's computers, wherever they are on the other side of the country, to clean up my own computer's desktop. Why do I even have my own computer?" Did it do a good job? Yeah, of course. Yeah, it did great. And I was like, "Why do I even have my own computer at this point?"

• 36:53Joe Weisenthal?

  I started wondering, you know, I'm like, "Why do I even have a computer?" And so, related to this sort of DRAM question, could we just get into a situation in which people don't really have their own compute on their own device? Because more that like Anthropic's brain is sort of, or OpenAI's brain is sort of controlling the things we use, why not just have a very low-spec computer or low-spec phone or whatever, or, you know, low-memory, whatever? Because I'm already using their computers, et cetera. And are we just going to see whether memory or elsewhere, this sort of migration, where all of the interesting stuff and all of the memory and all of the compute happens elsewhere?

• 37:37Joe Weisenthal?

  And my phone just becomes a sort of, you know, or my computer just becomes a screen with an internet access?

• 37:44Speaker 04

  Yeah, I mean, I don't know about the idea like, you know, not having the personal devices.

• 37:50Joe Weisenthal?

  Yeah, I might like have a physical device, but it just sort of seems like, over time, does it make sense for me to have all of this actual compute inside my house? When I'm just like, "I might as well let them have it all."

• 38:03Speaker 04

  Yeah, I will say it depends on like what's your end purpose, why, you know, for example, laptop, for example, right? If you are doing like media editing memory heavy, right? You probably still a lot, you probably still need quite a lot of D R A N, right? If you're just, you know, doing like, you know, document work, right? How cold depends on how you're gonna use it. If you're using like super intensively, I think you still need like quite good D R A N. Especially you are like pulling all different A P I from different places, right? Uh, so I will say it just really depends on the end purpose. I, I, I don't think like, you know, at least, at least I haven't seen like, you know, there'll be like kind of structural uh, sort of D R A N destruction in, in the devices uh, from, from agenting A I.

• 38:38Tracy Alloway?

  So going back to the beginning of this conversation and the cyclicality of the industry, people have been throwing around the term super cycle, again, very commodities-esque. Is this just a super cycle, you know, maybe bigger than a previous turns that we've seen throughout history? Or do you think something structural has shifted here? Perhaps given the rise of A I and the fact that Joe is, you know, using Claude to clean up his desktop?

• 39:09Speaker 04

  This is a actually very dangerous question to real, you are basically asking, right? Whether this time is different, right?

• 39:15Tracy Alloway?

  Yeah, right.

• 39:16Speaker 04

  You know, uh, uh, I, I think like, you know, I think there's a couple of things that actually rhymes with the history, right? The non-migration, fat capacity, right, those things. But I would say like, you know, there's kind of a difference I'm seeing, right? Because we rarely see in a sort of super cycle that there's a new demand driver coming online. It's not only constrained the demand, this thing is also constrained the supply, right? Before, because we, you know, for example, in twenty twenty ten to twenty twelve, there's a super cycle driven by mobile, right? So mobile is basically, hey, we have a new product coming online and it requires a lot of D R A N, let's, let's and our capacity couldn't catch up. But right now H P M is like, hey, okay, we need to do H P M. But your H P M is actually constraining your commodity D R A N capacity. So I think this is the key difference that we are seeing for this, right?

• 40:01Speaker 04

  Apparently, the demand accelerations is also last quite long, right? If you're really starting counting the sort of, I will say, the AI acceleration in terms of demand, probably let's say second half of 2023, when Nvidia really start kind of emerging in people's attention.

• 40:15Joe Weisenthal?

  Yeah.

• 40:16Speaker 04

  Let's like to now is almost probably like, let's say, three years, right? Two year half, two, three years. And we are looking at this cycle to last until, let's say, you know, safely to say like second half of 27, right? So we are looking at like kind of four year cycle. That's quite rare in the history. The, the usually like the cycle, if you look at historically for the memory, is probably like 15 months, like the probably longest like 18 months from start to its peak. Well, right now we are going this through to an area that was like, hey, the demand was going up, not a price directly, but the demand at least was growing quite significantly over the past few years, right? And the pricing impacts is happening right now, starting from probably Q2 2025.

• 40:55Joe Weisenthal?

  Well, what is, when you say, okay, the cycle could end by 2027 or the second half of 2027, what are the ingredients for it to slow down? Is it the more production capacity? Is it a slowdown in actual total demand? Like, what, what do you see potentially happening in 2027 that brings supply and demand more into balance?

• 41:17Speaker 04

  Yeah, so I, I will say like it will end. I will say like it's a more tricky area to sort of.

• 41:23Speaker 04

  Because, you know, based on the number, you know, I'm modeling, we are seeing here, the demand is actually going higher and the shortage is actually going to worse. And the power of that is because a media's AI server, their during content was going to 3X compared to regular, right? And then.

• 41:39Joe Weisenthal?

  So what kind of server? An Nvidia server?

• 41:41Speaker 04

  No, Looping, Looping 200, yeah.

• 41:43Joe Weisenthal?

  Yeah, okay.

• 41:43Speaker 04

  I'm sorry, Looping Ultra, sorry, Looping Ultra, Looping 300.

• 41:46Joe Weisenthal?

  Okay.

• 41:47Speaker 04

  And if that's the case and the demand was continued to be that strong, right? Your HBN shortage should even be worse compared to 26. And your dealer should go to go worse, right? Because a memory maker is gonna try to make more HBN wafer, right? And that kind of counting out more on commodity DRAM. Uh, I think the reason I say it's more tricky because two things. Uh, I mentioned about a lot of non-migration. It's actually happened this year. It's also gonna happen in twenty twenty seven, right? So tons of non-migration gonna come online and got being completed. So that will add a lot of additional bits for the memory supplier. Additionally, the wafer should have a lot more coming online by the end of twenty six and for, you know, throughout twenty twenty seven, right?

• 42:31Speaker 04

  So I think those are the two variables that you want to factor in. For what I'm seeing at least, I think like twenty twenty seven, Diran gonna still be shortage, yeah.

• 42:40Tracy Alloway?

  Hmm. We need a strategic memory chip reserve, right? Put a floor on prices and the cycle. Actually, on that note, do you see a lot of stockpiling in the market or panic buying right now? Where people are seeing these forecasts and they're freaking out and just buying whatever they can?

• 42:58Joe Weisenthal?

  How you get a bullwhip effect?

• 42:59Tracy Alloway?

  That's right.

• 43:01Speaker 04

  Yeah, it's hard to say no, right? Like, one of the good, I, I think, a signal you're seeing in Titanic, Samsung and Microsoft. Their Diran inventory was dropping every single quarter since, I think, Q three, twenty twenty five. And that's just one of the signal that you are not just, you know, buying the sort of products on the shelf, right? And then the products are coming online that quarter. You're also buying the, the products that in their inventory, right? You're, you're trying to get as much of the product as you can. And you know, and you know, given the order demand and how AI has developed so fast, like by month, monthly basis, it's hard to say like, hey, there's no preemptive purchasing behavior happening, right?

• 43:42Speaker 04

  And especially when the hyperscalers and the leading AI labs, they're competing each, uh, with each other very intensively. Uh, securing capacity on the hardware is sort of the baseline, right? You, you, and you want to get the best equipment that you can compete, right?

• 43:56Joe Weisenthal?

  So obviously, if I'm buying a Nintendo Switch, or if I'm buying a PC, or maybe some sort of consumer device, then the increased memory cost is a meaningful driver of that. And maybe, you know, the company will have to raise prices, and maybe I won't buy it or whatever, and you might get this. What about like for the big hyperscalers? When we see these huge capital expenditure numbers from the likes of a Microsoft or an Amazon, do these prices changes move the dial at these levels in terms of, do they affect anything when we're talking about these buyers?

• 44:30Speaker 04

  Yeah, I don't think, you know, number one for sure. I think the the the capex is not really or the capex increase is not because of the D rent price increase.

• 44:38Joe Weisenthal?

  Sure, yeah.

• 44:39Speaker 04

  But D rent price increase does gonna have some kinds of impacts to their purchases of memory, right? Assuming the hybrid scholars are a direct buyer of the memory, which, you know, is not necessarily the case in kind of different locations, right? So if they are assuming they are the direct buyers of the memory for sure, right? If, you know, if your initial call was using a hundred million to buy a certain amount of memory, right now, probably you need to do some discount there for sure. Especially this thing is probably gonna the discount gonna be more and more in the coming quarter, right? So one of the things they are trying and they are hopefully they are trying to do, but they are just still very difficult is like they try to have a long term agreement, right, to commit large value for the year basis and to hopefully to have better pricing.

• 45:22Speaker 04

  But it's really hard to, you know, to achieve that because why in the memory supply I want to do that, right? We we can, you know, negotiate a pricing in a quoting basis. We can actually get more money, right? And especially given the current pricing and supply demand environments.

• 45:38Joe Weisenthal?

  Ray Wang, thank you so much for coming on Odd Labs, really the perfect guest. Let's stay in touch and maybe we'll revisit it in 2027 to see if things have eased.

• 45:49Speaker 04

  Yeah, hopefully.

• 45:50Joe Weisenthal?

  All right.

• 45:50Tracy Alloway?

  Thanks so much, Ray.

• 45:52Joe Weisenthal?

  Take care, Ray. That was great.

• 45:53Speaker 04

  Take care. Thank you.

• 46:07Joe Weisenthal?

  Tracy, that was fun. I do feel like there's a lot of moving pieces there, but just from AI in general, the crowding out effect is such a big part of the story. When when you saw those big capital expenditure plans for 2027, like, these are real macro drivers. They're gonna show up in CPI, et cetera, like that. And because it's like, you know, maybe we'll get a lot of productivity gains in the future. But right now, the pace of spending is so furious, it is like a fiscal boom.

• 46:36Tracy Alloway?

  Yeah.

• 46:36Joe Weisenthal?

  A fiscal stimulus.

• 46:37Tracy Alloway?

  This is what happens when some of the world's biggest companies and most cash rich companies decide that this is an existential threat, right? There's no upward limit on how much they're willing to spend in order to survive. And so you could just throw money at HBM chips, I guess. And then you get the chip makers going, well, actually, like. We want to produce a bunch of HPM, like, forget about DRAM, all of that stuff.

• 47:03Joe Weisenthal?

  I do think, like, yeah, you know, when it comes to some of the data center and energy stuff, you know, it's a little ambiguous how much it's affecting energy prices right now, but already the politics of that is very fraught. And then you're going to start upsetting the gamer community because they can't get act, you know, Nvidia has talked about curtailing some of it. And then they're going to upset my son because he can't get a Nintendo Switch, et cetera. People are just going to start feeling it more and more, this sort of visceral reality, that various resources that they thought they could get abundantly, it's like, nope, we've switched this line over to the data centers, over to AI, and it's become, going to become more, this crowding out effect is going to become more and more real to people

• 47:48Joe Weisenthal?

  directly.

• 47:49Tracy Alloway?

  Which is so ironic, because when you think about AI, you know, it's this thing that exists in the ether, right? But at the same time, it has this huge physical impact on the real world. It's, it's kind of funny, and I guess, like, not what a lot of people would have expected.

• 48:05Joe Weisenthal?

  No, I suppose not. The DRAM, people, if you, anyone who has a terminal or just, should just look up DRAM prices, because this is...

• 48:13Tracy Alloway?

  I thought you were going to say, anyone who has a terminal should start stripping out their memory chips.

• 48:17Joe Weisenthal?

  Everyone who has a terminal should just unscrew the back and pull out the DRAM. No, but if you had, you, people should just look at the chart, because it really, here is this thing that's very sleepy. I mean, this was true commoditized tech, you know, this was the low end in terms of what people were excited about in chips and so forth. And as Ray mentioned in the beginning, you know, costs generally were on this downward trend and so forth, because growth was modest and technology continues to improve. And then it literally just looks like an L, really in like, the last four months, just gone completely nuts. And so, yeah, kind of a fascinating spot to watch. And it's just interesting, to the point that you were making, how much it really is like a commodity super cycle.

• 48:58Tracy Alloway?

  Yeah.

• 48:58Joe Weisenthal?

  A commodity cycle.

• 49:00Tracy Alloway?

  Well, I guess in 2027, maybe we'll find out.

• 49:03Joe Weisenthal?

  We'll see if it balances out.

• 49:04Tracy Alloway?

  Shall we leave it there?

• 49:05Joe Weisenthal?

  Let's leave it there.

• 49:06Tracy Alloway?

  All right. This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 49:12Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest Bray Wong. He's at R Wong 07. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, and Cale Brooks at Cale Brooks. And for more Odd Lots content, go to Bloomberg.com/oddlots for the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 49:36Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about DRAM and HBM and other acronyms of the memory chip industry, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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