The current memory upcycle could shift to a downcycle
I've been watching the AI supply chain for months and something feels off. Everyone's bullish on NVIDIA, TSMC, and memory suppliers like SK Hynix and Samsung, citing the "huge demand for compute." But the bear case isn't about AI being useful—it's about a flaw in the software side that's about to crash hardware demand.
Enterprises are using their API credits 10x faster than planned. Some tech firms burned through their entire 2026 AI budgets in just a few months. Companies can't keep paying high API costs at this rate.
The consensus thinks OpenAI or Anthropic will just raise prices. They can't. Why? Open-source platforms like OpenRouter, Venice, and Baseten have weakened their pricing power. It's like a food delivery app—developers can switch between models in one line of code, choosing the cheapest option at the moment.
Chinese labs are flooding the market with open-source models like DeepSeek V4, selling them at 1/30th or 1/100th the price of closed models. These labs get the models for free, and inference providers just charge for server power.
Closed labs are losing money (OpenAI reportedly near -122%). They have no organic cash flow. They rely on massive funding rounds and upcoming IPOs to keep buying GPUs and subsidizing usage.
Here's the key point for hardware investors: When these labs hit their peak funding or IPOs this year, that's the peak of hardware demand. The market will see these labs as a temporary fix with no path to profit. When funding stops, the massive capex cycle reverses instantly.
Even worse for memory and chip companies: Open-source inference doesn't need giant clusters. It's small, efficient, and distributed. Models are being simplified to run on smaller, cheaper setups. As demand shifts from massive training clusters to cheap inference from open-source players, they won't buy top-tier HBM. Instead, they'll build custom ASICs or NPU setups with cheaper, high-density DDR5 or LPDDR to cut costs.
AI query volume might soar, but the dollar value of memory/silicon per server (P × Q) will drop because open-source models push everyone to build cheaply.
The hardware cycle is peaking now due to artificial, venture-subsidized demand. The problem is on the demand side, not supply. When funding ends and inference becomes commoditized, the hardware unwind will be tough. Also check out the tweet where I developed this idea:
Credit to:MU--
So basically, cheap open-source models and API churn mean less HBM demand—does that mean MU and AVGO get squeezed this year?
If OpenAI is near -122% and Chinese models undercut closed ones by 1/100th the price, the economics shift fast. With API credits used 10x faster, I’m leaning underweight MU/AVGO and favoring NVDA and TSM on ASP stability.
Not adding to MU; demand peak risk feels real.
Feels like a headline-driven rollercoaster today.
SPY down 1.2% on Asia, then back 0.6%—volatility’s compressing fast. DIA’s 10-day spread narrowed, feels like a mean-reversion pop.
Everyone’s calling this a ceasefire, but why would Asia’s panic unwind so fast? Are we just seeing liquidity chasing back into SPY/QQQ after a headline reset, or is DIA still underpricing the risk premium? Feels fragile.
Is this just political theater, or does it actually move sentiment in the polls? If it’s noise, why does it keep getting amplified?
Nervous but watching for volatility opportunities.
