Why Micron Technology's gain could be hyperscalers' pain
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Memory chip makers surged in morning trading on Thursday after a gangbuster earnings report from Micron Technology , in which executives stressed continuing supply constraints for parts and components. Micron CEO Sanjay Mehrotra told investors Wednesday that the company does "not have line of sight as to when" memory supplies will be able to meet demand. He predicted tight markets beyond 2027. That shortage has given Micron huge pricing power in tech value chains and has exploded its gross margins and other profitability measures. Micron reported third-quarter non-GAAP gross margins of 84.9% on Wednesday. While that's great news for Micron and other memory suppliers, the profit margin expansion has implications for technology value chains, and equals higher costs for the sector's customers. Consumer electronics makers are fast raising prices to protect their own profit margins, risking that won't take a bite out of demand. Higher Apple prices Apple on Thursday raised prices on its MacBook and iPad products – by as much as $300 in some cases. The MacBook Pro 1T is going to $1999 from $1699, and the iPad Pro Wifi 256GB is going to $1199 from $999. "The consumer electronics industry is facing an unprecedented challenge," Apple said Thursday. "The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage. We have never seen a component price increase this much, this quickly." Some analysts are warning of knock-on effects at component buyers, notably the hyperscalers building data centers, and raising concern about consumer inflation and aggregate demand. "While tech is enjoying a big relief rally this morning, the memory mania has some dark sides, including pressuring the free cash flow at hyperscalers and driving inflation higher throughout the economy (AI might eventually be disinflationary by fueling productivity, but for now, it's pushing prices higher)," Adam Crisafulli wrote in his Vital Knowledge newsletter on Thursday. While memory makers Micron, SanDisk , Seagate and Western Digita l all rallied on Thursday morning after Micron's projection of ferocious demand for its hardware, the hyperscalers – who will pay those higher prices – were down. Megatech slide Google , Meta , Amazon and Microsoft were all lower in early afternoon trading. Apple at one point was down 6.6%. Microsoft on Thursday raised prices on Xbox Series S consoles with 512 GB of storage by $100 to about $500, starting Aug. 1. Other electronics makers have also increased prices in recent months. Dell specifically cited higher memory costs, according to Business Insider . "Micron's margin trajectory (which should remain robust) … says that companies from Nvidia to Apple to Dell to the hyperscalers need to absorb huge cost inflation and then pass them through to beat and raise [forward financial guidance] from here," Ben Reitzes at Melius Research wrote Thursday. After tariffs last year and surging energy prices coming from the war in Iran in 2026, now the economy faces a potential third driver of inflation in the form of higher memory chip costs. Inflation in the personal consumption expenditures price index rose to 4.1% in May, the Commerce Department reported Thursday, while the consumer price index was last reported rising at a 4.2% annual rate. Both are more than twice the Federal Reserve's target of 2%. Apple's price hikes were a source of consternation among analysts on Thursday, who noted how unusual they are. "Today's move is a clear signal that memory inflation is biting harder and faster than expected, even for Apple," Evercore ISI analyst Amit Daryanani wrote Thursday. "While the price increases should help protect gross margins, intra-cycle hikes are very unusual for Apple and raise the risk of some demand friction across Macs and iPads." JP Morgan's Samik Chatterjee echoed that view, saying price hikes could bite into sales. "Higher-than-expected magnitude of price increases … could drive pressure on volume expectations for Macs and iPads, which have been able to deliver robust share gains recently with Apple delaying price increases relative to competition," he wrote to clients Thursday. The AI buildout and the demand for memory is adding to price pressure in the medium term, but it's also eventually expected to drive productivity gains in the economy by lowering overhead costs relative to output. Theoretically, that will reduce the need for companies to raise prices in the service of margins, and worsen consumer-level inflation pressures along with it.