Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) saw their shares move higher on Thursday, climbing roughly 1% and 2% respectively, after reports emerged that both firms are negotiating long-term memory supply arrangements with SK Hynix.
According to those reports, Google remains in ongoing talks with SK Hynix to secure a long-term memory agreement, while Microsoft is said to be in the final stages of negotiations. Insiders cited in the reports indicate the Microsoft arrangement could guarantee access to memory for the next five years.
These potential contracts arrive as large cloud providers and AI hyperscalers prioritize guaranteed access to memory components needed for expanding data center capacity. Sources say that, in the current environment, ensuring supply has become the overriding objective for these companies, with price considerations taking a subordinate role.
Both Microsoft and Google are also reported to be in discussions with Samsung Electronics, which along with SK Hynix is a leading global memory manufacturer. Historically, the two tech firms have tended to buy memory on an as-needed basis, benefiting from more flexible supply and price movements. The new approach, by contrast, emphasizes multi-year commitments.
Details being finalized with SK Hynix reportedly include minimum price provisions designed to shield the manufacturer against potential losses if global memory prices decline during the life of the contract. The conversations also reportedly contemplate upfront payments to SK Hynix amounting to 10% to 30% of the value of memory supplied under the agreements.
Memory modules are a central input for data center operations, and the present supply tightness is posing a direct challenge to planned expansions by Big Tech. The shortage is not limited to hyperscale infrastructure; it is also rippling through the consumer device market. As memory costs rise, manufacturers face higher production expenses, which is contributing to upward pressure on prices for smartphones and laptops.
The shift toward long-term purchasing arrangements signals a notable change in procurement strategy for major cloud operators, reflecting the premium they now place on supply certainty amid volatile market dynamics for memory components.
Contextual note - The information in this article is based solely on the reports referenced; specific contractual terms and final agreements remain subject to confirmation by the parties involved.