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It’s not about ai. Ai is the narative. And the more I look at it, the more obvious it seems. Ai bubble has become this trending topic that everyone like to talk about. But it’s a complete distraction from what’s actually going on. This is just my idea and estimate of what is going on, and in no way an accusation. This is speculation. All of these things are allegations, and I do not try to provide evidence here. Make from it what you want and think about it yourself. So with this out of the way, let me explain.
chapter 1: cutting right to the chase
Hardware is not getting better, it’s effectively impossible to enter into this market at the high end, only a few companies are left, those work together, and they effectively control the supply of hardware. Most people need Hardware. What is happening now is that the makers only sell to specific companies under the guise of ai compute demand, namingly the “hyperscalers”, i.e. the usual suspects of Google, Amazon, Microsoft and so on. If someone needs some computing ability they either spend a lot of money on Hardware which they sort of own, or they rent it from the big companies. Compute has effectively been olygopolized into the hands of a few companies.
CHapter 2: WHy now?
But wait, why now? Why didn’t they do this all along? What’s different now? Well, it’s simple. Hardware become too difficult to manufacture. Let me explain. The reason that this was not possible was, that it was somewhat “easy” to make Hardware before, because it simply wasn’t as advanced. So there was a lot of competition amongst the manufacturers. This made it difficult to create a cartel and to cooperate and hike prices. It also meant that there was competition, which resulted in better and better Hardware. So it didn’t take long for your hardware to effectively be outdated, which means that you couldn’t just hoard it. In a few years, it would be worthless.
Recently, this changed.
Hardware got to a point where it was effectively impossible for new competitors to enter the market. This drastically reduced competition, on top of the fact that improvements were already getting harder and harder to achieve. Because of this, progress effectively stagnated. Things were not getting better anymore, as it used to be the case for decades prior. Now a few companies control the whole supply things probably won’t improve significantly any time soon. And this opens up this opportunity. Now companies can artificially limit the supply, because no competitor is there to fill the demand.
If they now sell this existing stock to only a few select companies (whether it be the highest bidder, the one who buys the most, or whoever they want to cooperate with the most in the long term), then compute has effectively been oligopolized both in production as well as in availability, and there is not really anything anyone can do to break this chain. It’s the perfect “crime”, the perfect business. But wait…
Chapter 3: there needs to be an excuse
The makers can’t just reduce supply. If one does it, others eat them up. If all does it, they might have some trouble for price fixing. And for the buying side, they can’t just go all out buying things, as it won’t work unless everyone cooperates. Because otherwise they will just buy and buy stuff, and have their pockets drained. There needs to be a good story, a good coverup, for this whole thing to be approved and waved through the mass media. Enter AI.
The story goes something like this: Data Center Companies need an excuse to buy all the compute they can get. Ai gives this narrative. Oh ai is so big, we need all the compute we can get. It isn’t the numbers aren’t there. Yet they do it. They’re not stupid or falling for something here, the goal is completely different. Ai is merely the story, the narrative. To justify collectively hoarding all of this compute. But now for the more interesting side.
The makers need a good argument for fixing prices (i.e. agreeing on prices, ramping them up together, and lowering production). Ai, again, gives this excuse. Ram didn’t go up until August/September of last year. But ai was there before, so were datacenters, and so were crazy deals. It’s a completely smokescreen that ai is the reason for it. But the alleged super duper unheard of ai demand (and importantly, the media repeating and repeating this stuff including the “critical” media(!), which ultimately enabled and helped pushing this whole thing themselves too), gave the justification for the price increases. Oh, we have so much demand from ai, that’s why prices are going up. No, demand didn’t go up. The problem was exactly that there was not enough demand. So it seems like they instead used the illusion of demand to sneakily reduce supply and increase prices. Higher prices lead to scalpers buying the current supply (to sell at a higher price later on), leading to a sudden price jump. This funneled the narrative of real organic demand, and the train was going. They were not selling more though, they were simply the same, if not less quantity, but at a 6 times higher price. Pushing up their margins to about 85% (i.e. $850 profit for $1000 sold, or in other words: your $1000 ram only costs $150 to make, which previously was sold for maybe around $200)
Big tech now jumped on it, perhaps because they were worried about their own supply, or perhaps because this was already somewhat planned, but I don’t think so. They made deals with the manufacturers, buying up the future supply of 2026 and apparently also 2027.
And this whole thing pretty much happened within less than a year in a “move so fast the media won’t catch it and people won’t know what hit’em” kind of move. And it worked. In fact, the media is what ultimately enabled most of this to happen, as I already mentioned.
Chapter 4: where we are now
Ram is expensive, Hard Drives are expensive, Graphics Cards are expensive, Processors are expensive… right? NO. This is the biggest lie and illusion to al of this. Nothing is more expensive than it was some 6 or 8 years ago. People are simply used to, or were spoiled by things getting cheaper and cheaper for decades straight. Things are NOT expensive! Your perception has merely shifted. People left and right act as if dirt cheap ever improving computer parts were some sort of basic human right or basic good. When everyone ten years ago was just fine with even higher prices.
But back to the original topic. A handful of companies effectively controls the supply, check, and another handful bought it all up, check. So if anyone needs a lot of compute power, they need to rent it from them or pay a high high price to buy their own hardware…check.
So they won, right? Well, no. Two things.
Firstly: Who even needs compute? Heh, this is where I get you. It’s not you or your aunt, your mother or your friends. It’s companies. And guess what, it’s mostly the companies that are annoying anyways. Good companies tend to be lean and minimalist, and don’t need too much of anything, really. The ones who need all of this stuff are usually the big ineffective obnoxious conglomerates. So ultimately it hits all of them, and then by proxy, all of their customers (incentivizing them to move away from them!)
And Secondly, the age old rule, cartels don’t last. Yes sure, for now they might be doing this, but give it some time. It’s not the first time this happened, and it happened in the very same product categories of RAM and Storage/Drives.
chapter 5: what might happen
It seems like there are a few ways how this could end. Hardware being expensive now for consumers, and a big wave of “own your hardware” could simply be an attempt to get people panic buying now when they don’t get too much for their money, before dropping the prices back down again. I see this as a real possibility. The rule with stocks is “buy when there is fear (and prices are low!), sell when there is greed (and prices are high)”. I think this applies here as well. The fear of ever increasing prices leads to panic purchases even though the price/value is terrible and people don’t even need it either.
I think the main thing supporting this argument is, that technology still advances. Either the ai thing crashes and the hardware is released to the market again, or the manufacturers do cash in on the low supply buy quickly ramping up production and flooding the people waiting in queue to buy because of this very panic. Or things get so good that it eventually trickles down to the consumer level again. In any of these situations, prices would come down eventually.
Also, the manufacturers are making big money right now, money which they probably won’t be spending on yachts or expensive cars. This money will be reinvested into research and production. In other words: Progress. It’s a rare situation in that prices are going up temporarily, but I don’t think that the decade-long trend will be reversed anytime soon.
But if things should stay expensive,…
chapter 6: High prices are good!
Actually, I think the higher the prices for technology are, the better. Yes, really. I think this is one of the major things which people are missing. Many people complain that things get worse. Surveillance everywhere, digitalisation, technology, everything is electronic, cashless society, cameras on every corner, ai analysing and spying on the entire humanity and predicting their behavior. Guess what, all of these things are only happening now, because only now there is the technology for it. So the more expensive technology is, the less of these things are happening, and vice versa! I think it’s better for most people if technology isn’t cheap but expensive. I think with time people might realize this. It’s something to ponder. And with this, I will conclude this post for now.
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