The AI boom is making the cheapest smartphones disappear

AI data-center demand for memory chips has squeezed the supply for smartphones, driving up handset costs and prompting manufacturers to cut or abandon the cheapest models. Memory makers - dominated by Samsung, SK Hynix and Micron - shifted much of their late-2025 output toward AI infrastructure, pushing memory prices higher and increasing smartphone production costs. As a result, existing models are about 15% more expensive globally this year and new launches roughly 25% pricier than a year ago, with sharper rises in India (21%), Asia-Pacific (19%) and the Middle East and Africa (18%) versus about 5% in the U.S. Chinese brands that built businesses on sub-$150 devices have scaled back entry-level projects and prioritized premium, higher-margin phones; shipments of sub-$100 phones fell almost 60% year over year in Q2 2026 and examples include dramatic drops in Southeast Asia and price hikes such as a Redmi model jumping from ~$140 to ~$190.

The shift threatens to widen the digital divide by removing affordable entry points to mobile internet: an entry-level smartphone can equal 44% of monthly income for the poorest 20% and 76% for many in sub‑Saharan Africa, so unaffordability leads to delayed upgrades, shared devices, or remaining offline. With hyperscalers planning massive capex for AI infrastructure - S&P projects U.S. cloud giants’ spending to exceed $1.3 trillion in 2027 - analysts expect memory scarcity and higher smartphone prices to persist, altering global access and the economics of connecting the next billion users.