AI Boom May Make Smartphones Costlier by 2026

If you are thinking about upgrading your smartphone in the next year or two, it may be wise to plan carefully. The next generation of devices is expected to come with noticeably higher price tags, and the driving force is not flashy new phone features, but the rapid expansion of artificial intelligence infrastructure around the world.

According to fresh research from Counterpoint, the explosive growth of AI data centres is quietly reshaping the global electronics supply chain. As these massive facilities expand, they are consuming enormous quantities of critical components, particularly memory chips. This surge in demand is leaving smartphone manufacturers with fewer supplies, higher production costs, and limited room to absorb the impact.

At the centre of the issue is memory, especially DRAM. These chips are essential for both modern smartphones and advanced AI servers. While smartphones rely on memory to handle multitasking, gaming, and imaging, AI data centres use the same components to run complex, large-scale models. The difference lies in profitability. AI servers, especially Nvidia-based systems, generate much higher margins for memory suppliers than consumer electronics.

As global investment in AI accelerates, chipmakers are prioritising these lucrative customers. Counterpoint analysts warn that this shift is not temporary and could intensify through 2026. Memory prices are expected to rise by as much as 40 per cent through the first half of that year, significantly increasing costs for smartphone makers.

The impact is already visible in the bill of materials (BoM), which represents the total cost of components used to build a phone. Budget smartphones priced under $200 have been hit the hardest, with production costs jumping between 20 percent and 30 per cent in a single year. Mid-range and premium devices are also feeling the pressure, facing BoM increases of around 10 per cent to 15 percent.

With costs rising across all segments, Counterpoint now predicts that global smartphone shipments will decline by 2.1 per cent in 2026. This marks a sharp reversal from earlier expectations of modest growth, highlighting how supply-side pressures are starting to outweigh demand recovery.

For consumers, the most direct impact will be on pricing. Counterpoint expects the global average selling price of smartphones to rise by 6.9 per cent in 2026, a much steeper increase than previously forecast. Manufacturers, unable to absorb these rising costs indefinitely, are likely to pass them on to buyers.

Not all brands are equally vulnerable. Major players such as Apple and Samsung are better positioned due to their scale, strong supplier relationships, and focus on premium devices. Smaller manufacturers, especially those competing in the budget and mid-range segments, face tougher choices. Several Chinese brands are reportedly cutting costs by downgrading components, reusing older parts, or limiting hardware upgrades.

Looking ahead, smartphone makers are also expected to push more expensive “Pro” models, which offer higher margins and better protection against rising costs. For consumers, however, this could mean higher prices and fewer meaningful upgrades. The current generation of smartphones may prove to be among the most affordable for some time.