Memory makers are the hottest thing in tech. Are they making too much money?

Subscribe to enjoy similar stories.It says something about the memory business when skyrocketing profits can actually be a cause for worry.Profits have never been a sure thing in the volatile industry. Memory chip makers Micron Technology and Sandisk, as well as hard-drive makers Seagate and Western Digital, have all produced annual operating losses at least once in just the last three years.

But those days seem far in the past now, as the AI boom has sparked an epic run on memory chips and hard drives. Sales at all four companies have surged this year.Sandisk and Micron are now generating around 80 cents of gross profit for every dollar of revenue.

That compares to a wide range historically, from single digits to around 60 cents on the dollar.That seems unsustainably high for companies in the very expensive business of physically manufacturing chips. But the unique nature of chip making also speaks to why the market conditions driving such profits won’t be changing anytime soon.

Memory demand is growing sharply now, but new production facilities take years to build.Spending on artificial intelligence would need to fall off significantly to make a dent in the industry’s current pricing power. And the biggest spenders in AI just signaled their intention to spend even more.

Last week, Microsoft raised its capital spending forecast for the year by $25 billion, while Meta Platforms added $10 billion to its own planned outlay, with both citing rising component costs as the justification.AI systems require large amounts of specialized DRAM memory to function, while the models running on those systems also produce large reams of data that need to be stored and fed back into the models at high speed. Those memory demands