The global AI boom has a side effect that rarely makes headlines: it is quietly eliminating the cheapest smartphones from store shelves. The mechanism is not obvious, but it is direct. AI data centers require enormous quantities of memory chips. That demand is pulling supply away from consumer electronics, driving up production costs for smartphones, and forcing manufacturers to abandon their most affordable product lines. The result is a shrinking market for the devices that billions of people depend on to get online for the first time.
How AI Data Centers Are Reshaping the Memory Market
Memory chips sit at the heart of both AI infrastructure and smartphone manufacturing. Three companies, Samsung Electronics, SK Hynix, and Micron Technology, control more than 90% of the global memory chip market. According to Ramon Llamas, research director in mobile devices at IDC, all three pivoted the vast majority of their supply toward AI centers in late 2025, leaving consumer electronics manufacturers scrambling for inventory. Scarcity drove prices up, and those increases were passed directly to device makers.
The scale of AI infrastructure investment helps explain why memory suppliers made that pivot. S&P Global has estimated that capital expenditure by major U.S. hyperscalers, including Alphabet, Amazon, Microsoft, Meta, Oracle, and SpaceX, is projected to exceed $1.3 trillion in 2027, up from a projected $870 billion in 2026 and $470 billion in 2025. When that volume of capital is chasing memory chips, the economics for consumer electronics shift fast.
The Disappearing Entry-Level Phone
The consequences are visible in the data. In 2025, more than one in four smartphones shipped globally cost less than $150. That segment is now contracting sharply. Shipments of sub-$100 smartphones fell almost 60% year over year in the second quarter of 2026, according to IDC, dropping from 173 million units shipped globally the previous year.
Chinese manufacturers, which account for approximately 60% of all smartphones shipped globally, have been central to the affordable device market. Companies including Xiaomi, Oppo, Vivo, and Huawei built their businesses around offering feature-rich phones at low price points. That strategy is now being revised. Ivan Lam, senior analyst at research firm Counterpoint, told Rest of World that Chinese smartphone makers have “drastically reduced” their entry-level projects this year, choosing instead to prioritize higher-margin premium devices.
The numbers illustrate how quickly the shift is happening. In India, Xiaomi raised the price of a 128GB Redmi 15C by 36% between December and June. In Southeast Asia, Oppo’s sub-$100 phone shipments fell 96%. Vivo moved its main entry-level model above $100 in most markets. In Africa, where 81% of smartphones shipped last year cost less than $200, shipments of sub-$100 phones fell 34% year over year in the second quarter of 2026. Existing smartphone models have risen in price by about 15% globally this year, while newly launched models are roughly 25% more expensive than last year. The increases are steepest in emerging markets: 21% in India, 19% across Asia-Pacific, and 18% in the Middle East and Africa.
Lam does not expect a reversal. “What used to be below $150 may become below $250, or even $300,” he said, adding that he does not expect costs to return to pre-2025 levels. Llamas at IDC echoed that view: the memory chip shortage is unlikely to ease soon.
A Widening Gap Between Connectivity and Access
Here is what most coverage of the AI investment boom misses: the infrastructure that powers AI models is not neutral. It competes for resources with other parts of the technology economy, and the competition has losers. In this case, the losers are the people who were closest to being able to afford their first internet-connected device.
GSMA, the global mobile industry association, had projected that nearly 800 million more people would use mobile internet by 2030. That projection is now under pressure. Claire Sibthorpe, head of digital inclusion at GSMA’s nonprofit foundation, noted that an entry-level device already costs the poorest 20% of consumers the equivalent of 44% of their monthly income. For people in sub-Saharan Africa, that figure reaches 76%. When prices rise sharply and the cheapest models disappear, the calculation does not simply become harder. For many, it becomes impossible.
Sibthorpe described the practical consequences clearly: consumers who cannot afford a new device may delay upgrading, share or borrow phones, stay on older feature phones, or go offline entirely when a device breaks or is stolen. The digital services that increasingly mediate access to healthcare, education, banking, and employment are built for smartphone users. People without affordable access to those devices are not just missing a gadget. They are being excluded from infrastructure.
The AI industry frames its investment in terms of capability and progress. That framing is not wrong, but it is incomplete. The same capital flows that are accelerating AI development are, through the memory market, making basic digital access harder to reach for the people who need it most.
In Short
AI data centers are absorbing memory chip supply, raising smartphone production costs globally. Chinese manufacturers are abandoning sub-$150 and sub-$100 devices in favor of higher-margin products. Shipments of the cheapest phones are falling sharply across emerging markets. For hundreds of millions of people who have not yet come online, this is not a consumer trend. It is a barrier to connectivity, and it is getting higher.
Based on reporting from Rest of World.