On hardware costs, if it produces a large, sustained amount of demand, and if there are fixed costs (e.g. R&D) that can be shared between hardware used for it and other things, it may substantially reduce hardware prices in the long run for other users.
Suppose, to take an example, that there is demand for, oh, completely pulling a number out of the air, 4 times the amount of high bandwidth memory for AI that there is for 3D video cards and video game consoles. That’s on a sustained basis, not just our initial AI buildout. There is going to be some amount of fixed costs that have to be done at Micron and Samsung and the like to figure out how to design the product and optimize production.
That’s going to mean that AI users likely pay something like 80% of the fixed costs for HBM, which may very well lower costs for other users of HBM.
In late 2025 and 2026 there is a huge surge in demand for hardware. There’s a shortage of hardware, and factories don’t get built out overnight. So prices skyrocket, pricing out many users to the point where demand at the new price point matches the available supply. But as production capacity increases, that will also ease.
I do get that it’s frustrating if someone wants to build a system right now.
But scale matters a lot, and this may enable a lot more scale.
The reason I can have a cheap Linux desktop at home isn’t because there are masses of people buying Linux desktops, but because there are huge numbers of businesses out there buying Windows desktops and many of the fixed hardware development costs are shared. If those businesses running Windows desktops suddenly disappeared tomorrow, I probably couldn’t afford my home Linux desktop, because suddenly I’d need to be paying a lot more of the fixed costs.
In late 2025 and 2026 there is a huge surge in demand for hardware. There’s a shortage of hardware, and factories don’t get built out overnight. So prices skyrocket, pricing out many users to the point where demand at the new price point matches the available supply. But as production capacity increases, that will also ease.
And this is where your entire idea falls apart… The manufacturers have openly stated that they have zero interest in expanding production. They’re trying to avoid a supply surplus after the boom ends, and they know that expanding production now means crashed prices later. Why expand production, when you can simply not spend that money and charge higher prices anyways?
Covid produced inflation, where the strength of the currency dropped. The Federal Reserve wouldn’t permit deflation, because you’d risk seeing a deflationary spiral. Instead, it’ll just see wages increase more quickly than prices for a period afterwards to restore buying power. This is a specific product that’s seeing a shortage — you can list plenty of points in the past where a good was in short supply and prices rose and then fell.
EDIT: Just in computer hardware, to pick an example, hard drive prices went up when we had that flooding in southeast Asia fifteen years back.
Thailand is the world’s second-largest producer of hard disk drives, supplying approximately 25 percent of the world’s production.[76] Many of the factories that made hard disk drives were flooded, including Western Digital’s, leading some industry analysts to predict future worldwide shortages of hard disk drives…As a result, most hard disk drive prices almost doubled globally, which took approximately two years to recover.
I get what you’re saying, but weren’t big manufacturers committing to NOT expand production capacities? I can’t remember where I read it, but it felt more like they were just gonna hedge their bets and not build out in the near term.
Not to mention, this all sounds and looks like commitments and not actual orders. It just feels like they’re all playing with imaginary money and when the AI bubble bursts, and all those commitments up and disappear like a fart in the wind, those benefits of scale are also going to disappear and the prices will just stay high.
Not all of them, certainly, but there are a few plans for new factories. Samsung, for instance, is rolling out a new chip factory, if you want something to search.
On hardware costs, if it produces a large, sustained amount of demand, and if there are fixed costs (e.g. R&D) that can be shared between hardware used for it and other things, it may substantially reduce hardware prices in the long run for other users.
Suppose, to take an example, that there is demand for, oh, completely pulling a number out of the air, 4 times the amount of high bandwidth memory for AI that there is for 3D video cards and video game consoles. That’s on a sustained basis, not just our initial AI buildout. There is going to be some amount of fixed costs that have to be done at Micron and Samsung and the like to figure out how to design the product and optimize production.
That’s going to mean that AI users likely pay something like 80% of the fixed costs for HBM, which may very well lower costs for other users of HBM.
In late 2025 and 2026 there is a huge surge in demand for hardware. There’s a shortage of hardware, and factories don’t get built out overnight. So prices skyrocket, pricing out many users to the point where demand at the new price point matches the available supply. But as production capacity increases, that will also ease.
I do get that it’s frustrating if someone wants to build a system right now.
But scale matters a lot, and this may enable a lot more scale.
The reason I can have a cheap Linux desktop at home isn’t because there are masses of people buying Linux desktops, but because there are huge numbers of businesses out there buying Windows desktops and many of the fixed hardware development costs are shared. If those businesses running Windows desktops suddenly disappeared tomorrow, I probably couldn’t afford my home Linux desktop, because suddenly I’d need to be paying a lot more of the fixed costs.
And this is where your entire idea falls apart… The manufacturers have openly stated that they have zero interest in expanding production. They’re trying to avoid a supply surplus after the boom ends, and they know that expanding production now means crashed prices later. Why expand production, when you can simply not spend that money and charge higher prices anyways?
Even if everything you say comes true I still don’t see the prices coming back down. They never did after covid
Covid produced inflation, where the strength of the currency dropped. The Federal Reserve wouldn’t permit deflation, because you’d risk seeing a deflationary spiral. Instead, it’ll just see wages increase more quickly than prices for a period afterwards to restore buying power. This is a specific product that’s seeing a shortage — you can list plenty of points in the past where a good was in short supply and prices rose and then fell.
EDIT: Just in computer hardware, to pick an example, hard drive prices went up when we had that flooding in southeast Asia fifteen years back.
https://en.wikipedia.org/wiki/2011_Thailand_floods#Damages_to_industrial_estates_and_global_supply_shortages
Good one!
I get what you’re saying, but weren’t big manufacturers committing to NOT expand production capacities? I can’t remember where I read it, but it felt more like they were just gonna hedge their bets and not build out in the near term.
Not to mention, this all sounds and looks like commitments and not actual orders. It just feels like they’re all playing with imaginary money and when the AI bubble bursts, and all those commitments up and disappear like a fart in the wind, those benefits of scale are also going to disappear and the prices will just stay high.
No, they’re definitely also expanding.
Not all of them, certainly, but there are a few plans for new factories. Samsung, for instance, is rolling out a new chip factory, if you want something to search.