Smartphone prices are expected to increase sharply as a result of escalating spending on artificial intelligence (AI) infrastructure, which is driving global memory and storage costs to unprecedented heights. Carl Pei, founder and chief executive officer of Nothing, highlighted this shift in a post on X (formerly Twitter) on the 14th of January. He stated that the assumption that smartphone components would consistently become cheaper has finally been proven wrong.
Pei explained that for 15 years, the smartphone industry based its strategies on a stable belief: components would become less expensive over time. However, in 2026, that belief has come to an end due to a significant spike in memory costs.
The growth of AI data centres has fundamentally altered the global memory market. Pei noted that major tech companies are securing chip capacity years ahead to support their AI developments, which places smartphone manufacturers in direct competition with AI infrastructure for crucial components.
“For the first time, smartphones are competing directly with AI infrastructure and memory prices are rising sharply as a result,” he added.
Memory Costs Escalate with AI Demand
According to Pei, memory has quickly become one of the priciest components in a smartphone and could soon be the leading cost factor in the bill of materials.
“In some cases, memory costs have already increased by up to 3x, with further rises expected as unprecedented demand continues to consume available supply,” he noted.
Pei anticipates that memory modules which sold for less than $20 (approximately Rs 1,807) a year ago could surpass $100 (approximately Rs 9,035) by the end of 2026 for premium smartphones.
“When components that once grew cheaper every year suddenly experience significant price hikes, the economics of smartphone production fundamentally shift,” he commented.
A Structural Transformation
Pei indicated that this situation results in a structural reset of the entire smartphone market.
“This marks a complete reversal of everything we’ve come to expect from this industry,” he explained.
“Brands now have a straightforward choice: raise prices by 30% or more in some instances, or downgrade specs. The model of providing ‘more specs for less money’ that many value brands thrived upon is unsustainable as we approach 2026.”
He cautioned that the entry-level and mid-range segments might face substantial reductions in size as affordability wanes.
“Certain markets, especially in the entry and mid-tier segments, might see a decline of 20% or more, and brands historically prominent in these areas will likely encounter difficulties,” Pei remarked.
Even Nothing will not be exempt from these pressures, he noted. The company intends to enhance some of its upcoming products with faster UFS 3.1 storage, which will add further pressure on costs.
The End of the Specs Race
Pei believes that 2026 will signal the conclusion of the prolonged specs race that has characterised the smartphone industry for more than a decade.
“2026 marks the year the ‘specs race’ ends. As the industry realigns, experience will emerge as the singular differentiator,” he said.
“The era of inexpensive silicon has concluded. A fresh era of intentional design is commencing.”
Expansion in India Continues
This cautionary note comes as Nothing expands its footprint in India, one of its most rapidly growing markets.
The company recently unveiled plans to establish its inaugural flagship experience store in the country, while its sub-brand CMF is setting up its global headquarters in India. Nothing currently exports three devices made in India: the Nothing Phone (3), Phone (2a), and Phone (3a) series.
“Nothing holds less than 1% market share in global smartphone volumes, with over 70% of its sales volume originating from India. The company’s exports from India are projected to exceed 50K units by November 2025,” stated Tarun Pathak, Research Director at Counterpoint Research.
“Excluding the top five brands, Nothing achieved 31% year-on-year growth in 2025, making it one of the fastest-growing brands globally,” Pathak added.
Despite the increasing costs, Pei affirmed that the company will keep prioritising design and user experience over merely focusing on specifications.
“Our commitment lies in refining how the device feels and performs during everyday use,” he remarked.
