AI Supply Chain Week 4: The 60% Margin Gold Mine Nobody Expected

Let’s start this week with a question: What's the most important part of an AI chip? If you say it’s the GPU, then you are wrong. More than the GPU, it’s the memory in it that holds significance.

The world is experiencing a memory revolution. The formerly boring low-margin business has just evolved into a most profitable segment in the semiconductor industry. We're talking 60% margins on products that used to scrape by at 20%. And only three companies hold the leash on the supply.

For more than two decades, the semiconductor industry had kept a secret called the "memory wall."

GPU performance exploded 60,000x over two decades. But traditional DRAM bandwidth had improved, but only 100x in the same period.

The gap was manageable. But only when we were just gaming or browsing. The new AI models have a thirst for terabytes of data per second. The GPU is burning electricity, time, and capital, and still not quenching that thirst.

Enter High-Bandwidth Memory (HBM) into the picture. With the Vertical Revolution, HBM is solving the memory wall by completely reimagining memory architecture.

In contrast to the old flat memory chips, HBM is stacking 8-16 memory layers vertically and places them right next to the GPU, with each stack delivering more than 1 TB/s of bandwidth and holding up to 48 GB per stack in HBM3E systems.

HBM4 increases the data lanes by two times, from 1,024 to 2,048, pushing throughput even higher. And it uses 40-50% less power than DDR4 for the same work.

Here’s what you need to understand about the current state of things – without HBM, even the most powerful GPU is useless.

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AI workloads consume memory in three ways:

It takes 8 GB just to load a single 4 billion parameter model. Jumping to real systems, there is a 30% overhead. With such a huge requirement, "out-of-memory" errors often halt training.

Memory is irreplaceable. Without memory, there is no model, no training, and no data center expansion.

Now let’s see how extreme the demand shock really is.

All three major memory suppliers have kept a houseful board on HBM production through 2026.

More than a temporary shortage, the gap is structural.

A single HBM stack contains 12 to 16 layers. Each layer must be aligned with perfection and over thousands of microscopic connections must work without flaws. One defect and the entire stack is out for trash.

Yields are also far lower than standard DRAM. Stable yields for HBM3E 12-Hi stacks require at least two quarters of learning. Early HBM4 pilot yields, at around 65%, are terrible by memory standards.

Let’s say you went through these monumental tasks and successfully made an HBM. But you are still not done because you need to assemble the HBM stacks with GPUs using CoWoS packaging, which is booked till mid-2026.

The chips exist, but can’t be shipped without packaging slots.

At the moment, the entire HBM sector is dominated by three companies.

Together: ~95% of global DRAM, nearly 100% of HBM. That's your oligopoly.

HBM margins close to 60%, and standard DRAM margins are climbing up toward 40%.

With HBM accounting for over 30% of total DRAM market value despite being only ~10% of bit volume, the companies are basically selling less product for way more money.

It keeps getting interesting. Micron reported a 162% quarter-over-quarter price increase in some segments.

Beyond a memory company, the chips business are cash printing machine now.

Memory has become both the fuel that powers AI and a machine that produces a margin that the memory industry hasn't seen in decades. The companies controlling the supply of HBM will remain at the core of the global tech industry, as long as AI demand keeps growing.

To make the most out of it, here's your investment thesis in one sentence: In the AI race, the fastest chef still waits for ingredients.

And right now, only three companies control the kitchen.

Important disclosures: This newsletter is provided for informational purposes only and does not constitute investment advice. All investments involve risk, including possible loss of principal. Please consult with your financial advisor before making investment decisions.