The smartphone market is entering a phase where technological progress is increasingly driven by component economics. The boom in artificial intelligence, which until recently was perceived as a growth driver for the entire electronics industry, pushing more companies to the market movers list, is beginning to exert reverse pressure on mass consumer devices, primarily through a shortage and a sharp increase in the cost of memory.
Financial markets quickly reflected these shifts. Stocks of smartphone manufacturers and their key suppliers have been showing increased volatility in recent months. At the same time, investors are pricing in margin compression and the risk of falling sales volumes. Apple and Samsung securities appear relatively stable due to the scale of their businesses and control over supply chains, while shares of Chinese manufacturers and several contract assemblers are under pressure.
In a broader context, this is also being felt in the derivatives market. As a result, Dow Jones futures, alongside S&P 500 contracts, are increasingly reacting to news from the semiconductor and consumer electronics segments, reflecting concerns about slowing profit growth and amplifying short-term corrections amid doubts that the AI rally will fully compensate for weakness in mass consumer devices.
So, instead of moderate growth, the smartphone market is expected to decline from -0.9% to -2.1%, depending on the methodology. The key reason remains the rapid rise in prices for DRAM and NAND, which manufacturers are forced to purchase under increasingly unpredictable conditions. The average price of a smartphone may rise from $440 to $511 at the beginning of next year, while the cost of budget segment devices has increased by 20–30% since the beginning of this year.
It is especially challenging for the lower- and mid-price Android devices. This is where memory plays a critical part in the cost, and the price sensitivity of demand limits the space for retail price increases. Unsurprisingly, Chinese brands are expected to experience the most significant decline in shipments, with Honor, Oppo, and Vivo potentially seeing substantial drops. Manufacturers are increasingly choosing covert optimization rather than direct price increases. In other words, a reduction in the model range and in memory in basic versions, the use of cheaper displays and audio components, or cosmetic body upgrades to boost sales of more expensive configurations.
In this context, players with scale and vertical integration benefit the most. Apple and Samsung are expected to survive the coming quarters with relative ease. In 2026, they are quite believed to be able to retain roughly 19% of the global market each, even though supply is gradually declining. That more or less lines up with the current demand situation. In the third quarter of 2025, the iPhone 16 became the best-selling smartphone worldwide, with Apple Inc. and Samsung Electronics together taking about half of the top 10 spots.
The mid-range Samsung Galaxy A series – especially the 5G and AI-enabled models – basically shows where things are heading. The market is quite clearly shifting toward a balance between price and functionality rather than focusing only on flagship devices.
Notably, for the first time, the top five positions in the rankings were all 5G smartphones, which most likely reflects how quickly that standard has become the norm. This indicates that the technology has finally become the standard. Now local AI is starting to play a similar role, but its implementation requires even more memory and computing resources, locking the market into a vicious circle. To sell more, it is necessary to add AI features, but they are the ones that accelerate cost growth.
As a result, the industry is approaching a tipping point. The rise in memory prices, driven by the prioritization of AI infrastructure over consumer electronics, is quite clearly changing the structure of the smartphone market. The mass segment is shrinking, product ranges are becoming simpler, and competition is increasingly shifting away from pure hardware toward ecosystems, services, and financial sustainability.
For investors, this most likely suggests that even if there are strong market indices and ongoing support from the AI sector, weak consumer demand is what still remains a systemic risk. Over time, this is something that will gradually show up in company earnings reports and, comparatively, in broader market behavior as conditions evolve.
