Chipmaker Nvidia has notified some of its biggest customers about an upcoming price hike of over 15 per cent for servers containing the company's artificial intelligence (AI) chips. The announcement comes at a time when memory chip costs are soaring.
A Bloomberg report, citing sources on Saturday (local time), reported that the price hikes will come into effect for systems that will be shipped early next year and will affect systems including those with the flagship Vera Rubin and Grace Blackwell chips. Further, the increase will depend on the generation of Nvidia chips and the memory configurations.
Contract manufacturers that assemble servers for major data centre operators, including Microsoft, Google and Oracle, have recently informed their customers about the upcoming price increases.
The fact that the industry's most dominant player is unable to maintain current prices or absorb rising costs highlights the growing influence of memory chipmakers such as Samsung Electronics, SK Hynix and Micron Technology amid rapidly surging demand for AI infrastructure. Major tech companies such as Apple and Qualcomm recently said that they have been forced to increase product prices due to chip shortages.
Nvidia’s accelerator processors are central to the computers used to develop and run AI applications. Their performance depends heavily on the amount of dynamic random-access memory (DRAM) they are paired with. Samsung, SK Hynix and Micron dominate global DRAM production. Although the companies have been expanding their output, supply has yet to keep pace with rapidly rising demand. As a result, prices for these widely used components have surged, giving memory chipmakers unprecedented influence across the technology industry.
Nvidia is one of the most profitable companies in the semiconductor industry, allowing it to charge tens of thousands of dollars for each chip as supply from contract manufacturer Taiwan Semiconductor Manufacturing Co. (TSMC) continues to fall short of rising demand. The company has a gross margin of 75 per cent, which means that 75 per cent of its sales revenue remains after production costs are deducted. Originally developed from chips designed for PC gaming and sold for hundreds of dollars, Nvidia’s AI accelerators now command much higher prices, driven by relentless demand and the limited availability of viable alternatives to its products.
The chipmaker has also increased the prices of its gaming-oriented PC graphics cards, according to industry news site Tom’s Hardware. The price increases are also likely to add to the challenges facing the industry’s ambitious AI data centre expansion plans. Project delays, labour shortages, tighter capital markets and community opposition to new developments have already complicated many projects.
However, it remains to be seen how Nvidia's customers react to the latest development and whether it will create an opening for its rivals. This will depend on whether they can secure enough memory chips. While major Nvidia customers such as Amazon, Microsoft, Google and Meta are now pursuing their own in-house chip programmes, they are still dependent on Nvidia to meet the demands of their data centre build-outs.
Additionally, their ability to move towards greater independence will also depend on their access to supplies from Samsung, SK Hynix and Micron.
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