Ray Wang on How AI Is Causing DRAM Prices to Surge

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Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio. Stream the show live on the Bloomberg Business app or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays, starting at 7am, Eastern on February 28th. Make us part of your weekend routine on Bloomberg Television, Radio, and wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, radio, news. Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Wiesenthal. And I'm Tracy Alloway. 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 the AI beast and us humans. We're just going to get left out in the cold. They're like, nothing for you. We got to like feed. We got to feed it all to the AI. And maybe in 10 or 20 or 50 years, the AI is so powerful that it's aside, why do humans get any of this? We just, we should keep it all to ourselves. 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 in like you bought one before I did, I think, but mine was in the mid 90s. Yeah, yeah. I think it's about when I go to remember how much memory those things had. Oh, like nothing. Yeah. Like I looked it up, something like less than 10 megabytes or a bunch of them. You know how much PCs have nowadays? Actually, it's a good, I have no idea. I think it's, let's see, 16 gigabytes. Yeah. Isn't that crazy? It is, it is really crazy. I remember like, do you remember zip drives? Yeah. Oh my god. And they 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. They were zip drive. I don't remember. Yeah. Yeah. It was, yeah. That's right. Buying additional memory storage, etc. used to be this big part of the consumer process. I'm actually glad, you know, my son really wants an Nintendo. But if they can't produce them anymore because they can't get the memory, then I'll say sorry, no video game. That's so mean. You're going to have to sit them down and be like, I'm so sorry, son. There's this thing called the supply shortage. Yeah. I'm going to use this as a learning opportunity to explain how global supply chains actually work. Totally. You know what the other, the one interesting thing is if you look at spot D RAM 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 and video, etc. If you look at a chart of spot D RAM 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 just gone like, you know, the, K wire, yeah. And so obviously huge supply demand and balances. 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. Yeah. We started to get a handle on what's going on with memory. Let's do it. I'm really excited to say we really do have the perfect guest. We are going to be speaking with Ray Wong. He's an analyst at Semi Analysis. And he's recently published a brand new report on exactly this topic. Talk about a memory super cycle and so forth. So truly the perfect guest, as I mentioned, he comes to us from Korea. Ray, thank you so much for coming on Adlots. Hey, nice to be me, Bob. And thanks for having me. 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 and 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? Yeah. I think to really look at some of the imbalance supply demand dynamics, we want to look at what happened a few years ago. Your capacity to check your investment a few years ago. What's happening in 2020, in 2024? It's a down cycle. Because remember, doing a COVID, all the companies are trying to fight into buy tons of DRAM. There's a lot of purchases there, and they're sort of like up cycle. But it's like a very, very short up cycle because when the COVID gradually getting better, you actually don't need that much DRAM. And back then, the company will be like, hey, you actually don't have a sustainable demand, right? So they don't want to over invest to expand their capacity. And when you go into the down cycle, your CAPEX typically be in very constrained. Merrily like, company from their perspective, they try to be conservative. So that leads to 2024 in 2025 that your incremental wafer capacity, the goal of DRAM, is actually quite unlimited. But what's happening on the demand end is actually the demand was asserting so fast, right? You know, one way to look at it is to get a media attorney try. And if you, when you want one side, you demand asserting so fast on the other hand, as well as your supply, just couldn't catch up. And there's more nuances behind this supply, right? Because before they are just supplying all the commodity DRAM, like DDR, LPDDR, right? All the memory that goes to PCs, go to laptops, go to your mobile, go to Nintendo's waitress, right? But you know, what's happening in this AI is like, there's a new thing, HBM. The thing about it is like a specialized memory for directly for air asserting 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 HBM, right? And that ratio will actually go in higher when you go to HBM 4, HBM 5 in the next few years, right? So in that way, on the same wafer basis, you can, you can only produce that much HBM. And right now, what's happening is like, hey, this HBM is super, super profitable, and why not we dedicate more wafer for HBM? So here's the problem, right? You only have that much wafer and you need to try to do everything. So that's quounding out a lot of the supply going to the commodity DRAM, right? So we have sort of both things that's happening and essentially comes down to like, I think really, you know, things start really kind of people are aware of. 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 HBM for their demand. 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? Yeah. So I think a couple of reasons, right? You know, fundamentally, the sort of like cost per bits for DRAM was actually coming, they're coming down every single year significantly, right? Even in most recent years, it 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 key going down, right? So the cost is hard to become like, you know, the most competitive part, right? Another thing is the narrative, the sort of the committee that let's set up the standard for DRAM, right? So, well, you're doing the similar products, right? You're just having, you know, oh, this is kind of a little better power efficiency performance was a little better right here and there. So like it's hard for, you know, 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? We'll be the market process, right? And then with you are selling the similar products and you you are talking in similar audience, right? That sort of like, on a commodity, you know, so we can get the commodity products to me. I think those are the two main characteristics I'm seeing for DRAM. And I think that's a little different for HBM. 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? Yes. Can you explain this further and like sort of, yeah, walk us through what the commodity version and why there's this thing called HBM high bandwidth memory, what they're all about? Yeah, yeah. So essentially the emergence of HBM is really go down to a kind of model layer because this is when you like try to skill and try to skill in your AM model, right? Your thoughts of your father's increasing significantly every single year, right? Because your company was 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 a bandwidth is actually very limited. So from memory supply, they are thinking, hey, how can we expand the bandwidth to supporting the memory that going to scale the AI, right? So let's consult with HBM. So the way they do HBM is so they are stacking, multiply eight or 12 or even your future 16 DRAM dives 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 these dice together compared to a hey, which is 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 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 commodity, so I think it's less so because it's a lot more complex, right? And for supplier, you can actually differentiate either from the front end or back end technology. And when you know it's better, right? It gives you better margin, better ability to compare, compete with your competitor, right? And stuff like a thermal, things like that, it's the thing that will really stand out, right? And that's very different commodity DRAM. Getting more and more layers on HBM, it kind of reminds me of the Razer Wars where like, you know, Gillette would unveil a three-blade thing and then the next day someone has like 12 or whatever. [Music] UKG, their HR pay and workforce management tools help business leaders empower their people. Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepgett in London with the hosts of the Blue Bag Day Break Europe podcast. We're up early every week day, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy, and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money, and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech, or markets, you're hearing it while it happens. It's smart, calm, and to the point. And it fits into your morning. You can find new episodes of the Blue Bag Day Break Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts. 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? So there's a couple ways they do it, right? They will do it in terms of like kind of, they will do it different way, like different environments and also different vendors, right? So it's hard to say like, hey, this is exactly the way they do it. But particularly, I think you can think about like, hey, this is a amount of the chips we're going to purchase in the next four months. And this is a month we're going to commit, right? And we're going to sign the contract by saying whether this term will be four months or for the LTA, you can go as long as I do a year or even who yours, right? So let's say we'll typically weigh you think about it. But typically, you'll be like, hey, we signed this contract for four months, right? And by the end of the three months, for a quarter, so by the end of the quarter, you'll negotiate a new contract pricing for the next quarter. So that's typically the way it works. But, you know, the problem for right now is for consumer electronics, it's like, the pricing probably sort of, I will say secondary, because if you couldn't secure a value, you couldn't even make any money, right? So number one is secure value. Whether that, you know, make sure that fits to the demand, I'll look you are seeing. Two, it's whether you can negotiate the best pricing you can. But given the overall pricing environment, so a slow volatile was so asketing so much, it's hard to like not taking some kinds of margin impacts, because essentially, you know, you try to get a chip, right? And you cannot just, you know, get too much away from your vendors. 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? So honestly, it's good to be out there. All of the sudden things everywhere. Like, right, you know, AI training, you need tons of HBM. That just everyone knows, right? You also need a lot of the CPU DRAM. And that's LPDDR and the DDR that going through the server. You also need HBM, right? So that's on the training part. In an inference aim, you also need HBM, right? And you also need the CPU DRAM to go through those work, right? But, you know, the main one will be the HBM. And even the inference scene, right? Right now, they are separating to pre-fill and decal. And, you know, I think 80% I think right now, like the most important thing will be decal, right? And the code is super super like memory bound and memory intensive. And HBM, the memory importance of their was just, were only increased to my understanding, especially given the long-contains window continue to expand. And the inference usage and reductions continue to going up, right? So I think those are the typical way I would think about those, right? And the last thing is I think a lot of people talk about these days is about the agentic AI, right? Agentic AI, you want to power those, you need a lot of CPU, you know, a lot of CPU-based server, right? So what's including the CPU server? There's a lot of DRAM there, right? And a lot of agentic will also mean you need a lot of inference as well, right? And they go back to my previous home. You need a lot of HP and a DRAM, right? So I will say like kind of DRAM and I got HP and DRAM is kind of everywhere. And we kind of talk about storage, but storage is so everywhere, you know, in doing this process. I have a basic question, but why does AI need a lot of memory at all? So you just explain, you know, it's important for inference, it's important for training, whatever, but like why? Yeah, I think this needs to like go down to the model, the layer, right? Because essentially when you are trying to train, let's say you want to train the model, right? And then you just need to put your tons of data, you need to address 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 chunk of soaps, right? Yeah. So to do that process, how can you keep the previous data, your process to keep it in there and the process to another data that coming out after, right? So that's why you need a lot of memory. Then go back to my previous phone, 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 stuff, right? And you know, one of the good example, if you use TRIGBT, you guys definitely remember, right? You know, back to TRIGBT, which starts coming out. People just like, hey, like what's the weather? I like it. Very simple questions. Right now it's, or last year, people are doing like, hey, can you write a 20 page report, how tense or it can happen on people, right? For example, let me give you like 20 page report, and they will wait like five minutes, right? And so if you think about the process, like they do all the calculations, all the researches, and also give you the output tokens that the, the sort of 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 GPD3. And remember, the usage we know back to GPD3 was, it was the, the, the, the, the, the monthly daily users. But right now it was, I think the use of the GPD was 800 million, right? And we are not included the users for the Germany, for Cloud, for X AI, right? So if you multiply those effects, I think the memory demands very significant, and it's very clear to me. Yeah, it's really interesting. I saw some 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 2022. It's like, oh, get it to write a poem about this. And it's like, okay, 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, etc. So just overall token consumption has grown massively with increased capabilities. All right, let's talk about the demand destruction element. Any commodity is going to be the price is going to be a function of supply and demand and eventually prices get higher enough such that certain forms of demand just are no longer economical and it's like you know what we're just not gonna 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. Joe doesn't have to buy switch for his son. Yeah that's right. Yeah I actually bought a switch so the price. You should resell it. I don't know we'll see how the operating charge 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 kinds of products right. In peak you are surely seeing that. They're not no more answer a source they are all having a price hike for kind of different products right and you know on the kind of demand side you also seen that I think for the Chinese smartphone market right a lot of the analysts of the research firm right a lot of the company was saying like they are cutting off their smartphone outlook. For example I think media tech recently that for 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 ought to see off the same this year supposed to be 100 million but it will essentially goes to 19 million right. That's very significant. So I think we are already seeing that but you kind of vary in different places right. Apple will be a good example here because they're saying hey like hey we have all the price hike right but we actually managed pretty well. They're saying that real sort of meaningful marketing impact will actually show up in the second half 2026. Instead of fighting the first quarter or second quarter I think no sort of other 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 water consumer electronics or the spec whether it's a memory display let's measure for but also the camera right. The camera is also very important I mean hearing some of the display on the camera as well and you know also on the sort of the how are we called a delay lunch right because you don't want to launch your new products that have higher price than the initial result which will impact your new launch performance which usually the new launch product have better ASP better margin compared to previous generation products right. I think those are the things we're gonna see in a coming month in a coming quarters I think we'll show impact and people will start filming it. Joe do you think we're gonna get people like stripping old Nintendo's for memory chips like remember how during the commodity super cycle in like the early 2010s I guess there are all those stories about people like stealing electricity wires yeah yeah we might get some of that. 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. Yeah I think you know from the demand size lot difficult right from an only in perspective right there's only that much you can do right you can despac right but I don't think that address the fundamental issues right you are just despac your products and so you can ship but that there is this double Hsward right when you don't downgrade your products that actually look back compared to some of your peers who doesn't despac 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 where what can be done is probably on the supply side right so supply side we are mainly talk about a couple of vendors right the micron high-tech Samsung and for legacy ones right you have windbound and yeah and China like CSMT and JTCC right those people so I think the most right way right now this year because this year the really challenges there's a clean room constraint so clean room constraint is basically you have limited space that you can put all secrets and start manufacturing chips in the fan 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 so in that sense how can you produce more bits more theorem bits while having only limited incremental wafer capacity the only thing you can do it's not migration so in the process now you have most events is right now it's 1C right going down 1B1A and 1X ball about right and you know I think why not let's try to do a smite as much as they can to 1B and 1C which on the same way for basis they are produced a lot more chip a lot more bits of compared to the legacy not right so doing that way on the same way for 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 one how fast you can rent about this not migration right not migration is typically difficult well I was a difficult it's you know it takes time right for to go into the most events now right you need UV machine right you need all different kind of manufacturing processes right and not every fact can already prepare to do in that right so you will take time to rent about all those production for the new events not also you are having the challenge to like hey okay I want to do not migration right but how we can balance the capacity with hbn again that's another issue you want to kind of think about it right because some of the hbn process now it's actually using for high-end xx using 1B so let's actually the events process right so even you are including 1B but you're at the same time you want to do more hbn so like the increased year is actually quite limited so I think also the way can potentially fix the issue but you know from our house view right even with the factor all those in I think this year we're still going to see price and the future 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 get 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 the sort of Goldilocks period for them before the supply comes online where there's breaking in profits what do we see is the industries impulse to invest and I'm curious like you know whether it's Chinese producers are they in a position to 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 out there yeah that's a very good like strategic question I think you know every management will probably give you a sort of difference or kind of on the high level probably same by knee journal right like you know you know look at like historical cycle it's like you know if we are seeing class sustainable demand in the next few years and then clearly the capacity couldn't catch on the demand they are going to expand the capacity in some time right it probably not gonna be like hey we now see 2026 the capacity to be online and meaningful is probably 2028 so they will I think they will still announce right and we are seeing that from my right my point is announcing new nemfab in Singapore right they are expanding they are they have two fab currently it's an under construction in US right also doing tons of non migration and recently acquired the new fab from PSMC which is the Taiwanese stream maker right and they all those move that you are already seeing some sign of that another another sign you are seeing is the catapaks right both the high next Samsung and micro their direct catapaks is actually increased quite significant this year and expect similar trend in 2027 given I think you know they're gonna probably you know try to expand more capacity and advance more in both HBN as well as the equipment that goes to events equipment right that go better point I was talking about the non migration if you want a non migration you need to use more events equipment to produce more events 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 yeah yeah on catapaks 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 chip makers 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 the more basic stuff in the dust yeah so actually you know it's very interesting I think what probably seems to focus you wrote about this for our institutional client it's that you know the margin what 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 out so much right the margin of the commodity right now is actually higher than HBM so here that created a real dynamic that's crazy that you talk about it because when your margin of how many D-RAM 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 for memory supplier right before the old airplane your demand is really driving from couple a market right PC mobile in automotive industrial blah blah blah right HBM right now is search as a new group driver for the company which we believe will last for next few years right and for the memory supplier they are 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 come back. And then go back to my previous video. point that this is an area that is relatively easier to differentiate your products to get more market share more meaningfully. So I think three member makers are very, very value HBM, even though right now the margin of commodity rate is higher. I think they will still invest quite a lot on HBM and they will do their best to balance the commodity rate market. But I think this year, at least the number I'm saying is still quite significant. How do the Chinese producers compare to the Korean producers? Is there a gap? Oh yeah, I think they're definitely the gap. I think like, you know, if you look at the memory in general, I think it's probably three years. Three years. Three years. And it's probably four years, I will say, that this is very like, you know, time list is like kind of a slow today, you know, who knows what I'm having in the future. But I think you know, there's definitely a gap. You know, when I think about the competition pressure from Chinese member makers, we always want to look at a separate Chinese market and also the X China market. Let's also the memory supply was looking at it, right? So Chinese market is probably about 25% of the global demand. So really, the competition is happening in China because for the leading Chinese memory supplier like CSNT, for example, I believe like 90% or 95% of the revenue is coming from China and Hong Kong. So many, you know, most of the data is really coming Chinese market, coming with micro and high-end sense. So I think I want to say right now on the events on the high end, right? I think it was still dominated by its human makers, but CSMT are getting to momentum. Right? Why? And they are probably getting sort of a low end in me and products. And they are also benefited by Chinese government policy in terms of the self-sufficiency drive to, you know, whether it's for the commodity, the year end, also right now, they are pushing for HVN developments that support Chinese AI hardware. So if there's a shortage and it seems like the shortage is going to be with us for some time, how are the chip makers 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 open AI or something or does it go to an existing customer that's been buying in volume from me for years? Yeah, I think there's no doubt to me that, you know, sound of the highest, the highest tier customer will get a value for sure. Of course, there's more complex like pricing negotiation behind, but I will say like the value will be still be the most important thing. And I think that's probably what they're going to do, right? And you know, if I think about like a buy customer, I will think about kind of buy sector. I will say the server, D-RAN and HVN two sands together will be the top, top priority because, you know, if for the whole A market, D-RAN, we are seeing actually HVN and server D-RAN together is more than half of the D-RAN market, right? And that's important and this going so fast, right? And it's unlikely mobile, right? Mobile is kind of flat. The mobile demand is really driven by the increased D-RAN contents in the mobile, which is quite a bit right? If you buy iPhone over the past year, you know, like they are actually quite limited on their D-RAN content increase. So I think I think they'll lose out the top two priorities for the memory company to focus on in the next two or three years. And we'll see what happened, you know, after like, you know, second half of 2027 or 2028 if there is some structural change, but I think server D-RAN and HVN will be the top priorities. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. I'm Christina Raffini. We'll bring you the latest headlines in-depth analysis and big interviews. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful enlightening conversations about business, lifestyle, people, and culture. Listen on Bloomberg radio, stream the show live on the Bloomberg Business app, or listen to the podcast. Saturdays and Sundays starting at 7am Eastern. You know, the other day, I was very lazy. It was just not real. Just 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 like drag and drop them and put them in the recycling bin. And it 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, anthropics 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? Yeah, of course. Yeah, it didn't great. And I was like, why do I even have my own computer at this point? I started wondering, you know, I'm like, use it. Why do I even have a computer? Could it, 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 anthropics brain is sort of, or open AI'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, etc. And are we just going to see whether memory or elsewhere, this sort of migration, or all of the interesting stuff and all of the memory and all of the compute happens elsewhere. And my phone just becomes a sort of, you know, or my computer just becomes a screen with an internet access. Yeah, I mean, I don't know about the idea, like, you know, not having the personal devices. Yeah, I mean, like, I have a physical device, but it just sort of seems like, 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. Yeah, I was thinking depends on what's your end perps, perperse, you know, for example, that top for example, right? If you're the only like video editing, memory heavy, right? You probably still a loft, I probably still need quite a lofty, right? If you're just, you know, doing like, you know, document work, right? Yeah. How cool depends on how you're going to use it, if you're using like super intensively, I think you still need to try a good D-Ran, especially you are like pulling all different API from different places, right? So I will say it just really depends on the end perperse. I don't think like, you know, at least at least I've been seen like, you know, there will be a kind of structural sort of theorem destruction in the devices from a Gen.T.A.I. 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. Yeah. 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 AI and the fact that Joe is, you know, using Claw to clean up his desktop? This is actually a very dangerous question to real. You're obviously asking, right? Whether this time is different, right? Yeah. Right. I think like, you know, I think there are a couple things that actually run in with the history, right? Not migration, fake capacity, right? Those things. But I will say like, you know, there's kind of a kind of difference in MC, right? Because we really 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 as a plot, right? Because for example, in 2010 to 2012, there's a super cycle driven by MoBA, right? So MoBA is basically, hey, we have a new part of coming online. It requires a lot of D-RAN. Let's, let's, and our capacity couldn't catch up. But right now, H-Main is like, hey, okay, we need to do H-B-M, but your H-Main is actually constrained. You're commanded the D-RAN capacity. So I think this is the key difference that we are seeing for this right? Apparently, the demand assurations is also less quite long, right? If you're really starting counting the sort of, I will say, the air assururation in terms of demand, probably let's say second half of 2023 when MoBA really starts kind of emerging in people's attention. Let's, to now, it's almost probably like, let's say three years, right? Two year and a half, two years, 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 history. The, the usually like the cycle, if you look at historically for the memory, it's probably like 15 months, like, the probably longest like 18 months from start to its peak. But right now, we are going this route to an area that is 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 or 2025. Well, what did, when you would 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 do you see potentially happening in 2027 that brings supply and demand more into balance? Yeah, so I want to say like you will end. I will say like, it's a more tricky area to slow down. because based on the number, 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 service, they are dealing with content that is going to 3X compared to regular. And they can send it to a server. - And then we're going to be a server. - Noobin 200, yeah. - Yeah, okay. - I'm sorry, looping out 300. And if that's okay, the demand will continue to be that strong. Your HP is shortage to even be worse compared to 26. And your dealer should go to the gold wars, because the memory records are going to try to make more HP and wafer. And that kind of counting out more on commodity dealer. I think the reason I say it's more tricky because two things. I mentioned about lov not migration. It's actually happening this year. It's also going to happen in 2027, right? So tons of not migration going to 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 26 and for throughout 2027. So I think those are the two variables that you want to factor in. For why I'm seeing at least, I think like 2027, you're going to still be shortage. Yeah. We need a strategic memory to preserve, 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? How you get a bull whip effect. That's right. Yeah, it's hard to say no, right? Like one of the good, I think, I think no, you're seeing a tiny, semi-zone and micro-owned there during inventory was dropping every single quarter seems setting Q3 2025. And that's just one of the things that you're not just, you know, buying the sort of products on the shelf, right? And the products that come online in the quarter, you're also buying the products that in their inventory, right? And you are trying to get as much of the product as you can. And you know, given the order demand and how AI has developed so fast, like by monthly basis, it's hard to say like, hey, there's no pre-entive purchasing behavior happening, right? And especially when hyper-scoters and leading AI labs, they're competing each with each other very intensively. Securing capacity on the hardware is sort of the baseline, right? You want to get a best equipment that you can compete, right? So obviously, if I'm buying an Intender 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 you have to raise prices, 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? Yeah, I don't think, you know, number one, for sure. I think the CapEx is not really, well, the CapEx increases not because of the de-rend price increase. Sure, yeah. And you're in price increase, thus going to have some kinds of impacts to their purchases of memory, right? Assuming the hyperscalers are the direct buyer of the memory, which, you know, is not necessarily the case in kind of different locations, right? So if they are the direct buyers of the memory, for sure, right? If you're initial goal was using a hundred million to buy a certain amount of memory, right? Now you probably need to do some discount there, for sure, especially these things that's probably going to, that this is going to be more and more in the coming quarter, right? So one of the things they'll try, and they're hopefully they're trying to do, but they are still very difficult. It's 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. But it's really hard to, you know, to achieve that because why in the memory supply, I want to do that, right? We can, you know, need negotiate a pricing in a coding basis, we can actually get more money, right? And, yeah, especially given a current pricing and supply demand environments. Ray Wong, thank you so much for coming on to all the labs, really the perfect guest. Let's stay in touch and maybe we'll revisit it in 2027 to see if things have eased. Yeah, hopefully. All right. Thanks so much Ray. Take care, Ray. That was great. Hey, take care. Thank you. 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 you saw those big capital expenditure plans for 2027, like these are real macro drivers. They're going to show up at CPI, etc. like that. And because it's like, you know, maybe we'll get a lot of productivity gains in the future, but right now that pace of spending is so furious, it is like a fiscal boom. Yeah, I mean, 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 HBM, like forget about tram, all of that stuff. I do think like, yeah, you know, when it comes to some of the data center and energy stuff, that's a little ambiguous how much it's affecting energy prices right now. But already the politics of that, and then you're going to start upsetting the gamer community because they can't get act, you know, in video has talked about Criterion and then they're going to set my son because he can't get an Nintendo switch, etc. People are just going to start feeling it more and more. The 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 than people directly, 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 in the real world. It's kind of funny and I guess like not what a lot of people would have expected. No, I suppose not. The DRAM people, if anyone who has a terminal or just should just look up DRAM prices, I thought you're going to say anyone who has a terminal should start stripping out. And the terminal should just unscrew the back and pull out the DRAM. No, but if you have people, she just look at the chart because it's 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 we mentioned in the beginning, you know, costs generally around this downward trend and so forth because growth was modest and technology continues to approve. 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. It's just interesting to the point that you were making how much it really is like a commodity super cycle. Yeah, commodity cycle. I, well, I guess in 2027, maybe it will find out we'll see if it balances out. Shall we leave it there? Let's leave it there. All right. This has been another episode of the hot lots podcast. I'm Tracy Alley. You can follow me at Tracy Alley. And I'm Joe. Why isn't all you can follow me at the stalwart follow our guest. Bray Wong. He's at our one 07 follow our producers, Carmen Rodriguez at Carmen Armond, Dashal Bennett, a dash bot and kill Brooks and kill Brooks. And from our odd loss content, go to Bloomberg dot com slash Adlots for a daily newsletter and all of our episodes. And you can chat about all of these topics 24 seven in our discord discord dot gg slash Adlots. And if you enjoy all thoughts, if you like it, when we talk about D Ram 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 add free. All you need to do is find the Bloomberg channel on Apple podcast and follow the instructions there. Thanks for listening. [Music] Bloomberg Daybreak is your best way to get informed first thing in the morning right in your podcast feed. Hi, I'm Karen Moscow and I'm Nathan Hager. 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