The upcoming years may bring a challenge for those considering a phone upgrade as smartphone prices are set to rise due to the impact of artificial intelligence (AI) on the tech industry. The demand for AI infrastructure is on the rise, affecting consumers as data centers consume crucial components at a rapid rate. This surge in demand is leading to increased production costs for smartphone manufacturers, which will likely result in higher prices for consumers.
Research by Counterpoint reveals that the demand for AI infrastructure is causing a ripple effect in the smartphone market. Both next-gen smartphones and advanced AI servers heavily rely on the same type of memory chips, particularly DRAM. These chips are essential for handling complex tasks in servers and ensuring smooth operation of smartphones. However, memory suppliers are now favoring AI data centers, particularly those running advanced Nvidia-based systems, due to higher profitability, leaving fewer chips available for consumer electronics. This shortage in supply is expected to drive prices up.
Counterpoint analysts caution that this imbalance in the supply chain is not temporary and could exacerbate until 2026. Memory prices are projected to increase by up to 40% in the first half of that year, further pressuring smartphone production costs. The rising costs are already reflected in the total cost of components required to build a phone, with budget devices priced under $200 experiencing the most significant increase in production costs.
As a result of these cost escalations, global smartphone shipments are forecasted to decline by 2.1% in 2026, contrary to previous estimates that predicted growth. Counterpoint anticipates a 6.9% increase in the average selling price of smartphones worldwide in 2026, a steeper rise than initially anticipated, ultimately impacting consumers.
While major players like Apple and Samsung are better equipped to handle these cost increases, smaller manufacturers focusing on mid-range and budget devices face greater challenges. To maintain affordability, some brands are resorting to downgrading components or limiting hardware upgrades. Looking forward, manufacturers may shift towards offering more higher-priced “Pro” models with better margins to offset rising costs.
Consumers should anticipate higher smartphone prices, tighter budgets, and potential compromises on specifications in the near future. If contemplating a phone upgrade, the current generation might present the most cost-effective option for some time.