For over a decade, the technology industry followed a predictable, comforting rhythm: devices got faster, memory got cheaper, and storage became more abundant. But starting Q3, 2025, that rhythm hasn’t just skipped a beat; the heart has stopped. A global shortage of memory, both DRAM (RAM) and NAND Flash (ROM), has sent prices for smartphones and PCs into a climb. The culprit is the bottomless hunger of Artificial Intelligence data centers thousands of miles away.
We took a small tour of the popular Nehru Place Delhi markets to see how the memory price hike is affecting the sales. Upon talking to a store owner, they shared, “Last week, this was ₹55,000. Today, it’s ₹62,000,” he says, shaking his head. “Customers think we are greedy, but the price of the chips inside has gone up three times in a month. It’s not a price hike; it’s a ransom.”
This is the front line of the “AI Tax,” a global phenomenon that is hitting the Indian consumer harder than almost anywhere else on earth.
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The Architecture of a Shortage
To understand the AI Tax, you have to understand the physical geometry of memory. The Large Language Models (LLMs) that now power everything from global finance to your digital assistant require a specific type of high-performance memory: High Bandwidth Memory (HBM).
HBM isn’t like the RAM in your laptop. It is a complex, 12-layer skyscraper of silicon stacked vertically. Producing one wafer of HBM consumes roughly three times the manufacturing capacity of standard LPDDR5X (mobile memory).
“It’s a zero-sum game,” explains a senior production planner from a Tier-1 manufacturer. “Every wafer we allocate to an HBM stack for an AI accelerator is a wafer denied to the LPDDR5X module of a mid-range smartphone. The ‘Big Three’: Samsung, SK Hynix, and Micron, only have so many cleanrooms. When the AI titans walk in and pre-pay for the next two years of production at a 500% margin, the consumer lines get pushed to the back of the queue.”
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The Death of Flagship Killer
For the Indian market, which thrives on the value-for-money segment, the AI Tax is a punch to the gut. In 2024, a flagship killer from brands like Xiaomi, OnePlus, or Realme could be had for ₹40,000 to ₹45,000. These devices were marketed as having all the essential specs and were often found with 16GB of RAM and 512GB of storage.
In 2026, that category is extinct. The Bill of Materials (BOM) for a standard premium device has ballooned. Memory, which used to account for roughly 10% of a phone’s manufacturing cost, now sits at over 22% (and is growing). As a result, the new normal for a premium device has shifted from ₹70,000 to a staggering ₹85,000 and beyond.
But the real tragedy is in the mid-range and budget market. To keep prices from hitting the ₹40,000 mark, manufacturers are engaging in Spec-Dumping. We are seeing a return to 8GB RAM configurations in price brackets where 12GB was once the standard. To mask this, marketing departments have doubled down on Virtual RAM. VRAM is a software trick that uses slow storage to mimic memory, but it’s a band-aid on a hardware hemorrhage.
This AI Tax will also be hitting the growth of 5G devices in the country. The entry-level price for a 5G phone in India is expected to rise from ₹12,000 to nearly ₹16,000 by year-end.
The PC Market: A Perfect Storm
The PC industry is facing a dual threat. While AI data centers are stealing the memory supply, Microsoft’s aggressive push for “AI PCs” has created a hardware floor that the supply chain can’t support.
To run Windows “Copilot+” features locally, a machine effectively needs a minimum of 16GB RAM. Simultaneously, millions of Indian enterprise users are being forced to upgrade their hardware as older versions of Windows reach the end of their lifecycle.
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“It’s the perfect storm,” says a Mumbai-based supply chain analyst. “We have a massive refresh cycle colliding with a gutted supply chain. Vendors are facing a choice: eat the 40% hike in component costs and go into the red, or pass it on to the consumer. In a price-sensitive market like India, this is slowing down digital adoption for the first time in a decade.”
The Irony of the Tax
The most bitter irony of the AI Tax is the Loop of Necessity. Consumers are being told they need these new, more expensive devices to run the very AI models that made the devices expensive in the first place.
We are paying a premium for the hardware required to run the software that diverted the hardware supply to the cloud. It is a circular tax where the house the semiconductor giants and the AI hyper-scalers always win.
Is There an Exit Ramp?
When will the pressure ease? Not anytime soon. While new fabs are being rushed into production globally these facilities won’t reach full memory-grade capacity until late 2027. Until then, the industry is in a state of managed scarcity.
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We are moving from an era of Personal Computing to an era of Centralized Intelligence. In that world, the silicon in your pocket is secondary to the silicon in the server farm. You aren’t just buying a phone anymore; you’re subsidizing the infrastructure of the future.
As we head into 2026, the message to consumers is clear: If you have a working device with 16GB of RAM and a healthy SSD, hold onto it. The AI Tax is here to stay, and for the first time in the digital age, your old hardware might actually be an appreciating asset.
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