Memory chip prices are skyrocketing, thanks to AI demand, and there's no end in sight.

Why it matters: "Chipflation" is pushing up the prices for electronic goods like smartphones and laptops, as well as the costs for cloud storage and hardware — it also helps explain the eye-popping ascents in semiconductor stock prices.

• While the overall effect on inflation may not be huge — other kinds of products get more weight in the government's measure of consumer prices — the scale of this boom is unprecedented.

By the numbers: The Producer Price Index for electronic components and accessories, which measures what companies pay for semiconductor chips and other electronics and accessories, has gone vertical this year.

• The PPI for those components rose 27.6% in June from the same time last year — the largest increase in records that date back to 1966, easily eclipsing the surge in prices during the dawn of the PC era in 1980 and the supply crunch in chips during the pandemic.
• And this category might understate what's happening because it includes some unrelated electronic inputs.

Follow the money: The AI hyperscalers (Meta, Microsoft, Alphabet, et al) are locking up memory supply years in advance with long-term agreements.

• That's leaving traditional PC and phone makers competing for a shrinking pool of supply.

The big picture: We've never lived through a moment when prices for electronics have been such an inflationary force.

• Indeed, it's a reversal from a decades-long trend of the cost of computer memory becoming cheaper over time.
• Prices for memory have risen more than sixfold over the past year, according to a Morgan Stanley note in June that appears to have been the first to coin the term "chipflation."

Flashback: The price of a gigabyte of DRAM — the fast processing memory inside servers, PCs and phones — fell by around a factor of 10 every five years from 1957 to 2020, per the note.

• "However, this trend no longer applies in the AI economy."

How it works: "Memory" is a way of describing a device's brain — these chips essentially hold information on whatever a machine needs in the moment to get its work done.

• That could mean a web search or playing a video, or, lately, an AI model answering a question. It's basic stuff, until it's not.
• "Memory chips are easy to ignore until your laptop slows down, your phone costs more, or, [if you're a company], your cloud bill jumps," Shawn Kim, head of Morgan Stanley's Europe and Asia technology team, explained in a podcast in June.

Friction point: Earlier in the summer, when chipflation first hit the radar, some analysts expected companies to pull back tech spending in the face of rising costs.

• Now, the thinking has shifted. Companies seem eager to keep spending.
• Companies don't have FOMO, they have its nerdier corollary — FOMP, or "Fear of Missing Procurement," Morgan Stanley analysts wrote in a note yesterday.

What to watch: The July Consumer Price Index report is out tomorrow and will track any rises in prices consumers are paying for electronics.

• Morgan Stanley forecasts a 0.10 percentage point increase in headline CPI because of this crunch, but a potential 15 percentage point increase in the CPI for PCs and smartphones.

Japan's currency dropped yesterday, resuming a selloff momentarily halted by a coordinated intervention with the U.S. late last month.

Why it matters: The decline suggests that the U.S. Treasury Department and Japan's Ministry of Finance have further work to do to put a floor under the exchange rate.

Catch up quick: Late last month, U.S. and Japanese authorities intervened in the currency markets to buy yen and push up its value.

• In the year prior to the intervention, the yen declined in value by roughly 10%, as investors moved money away from Japan's relatively slow-growing, low-interest-rate economy to markets with higher potential returns.

The intrigue: Analysts believe that U.S. participation was based on the fact that Japan — the largest foreign owner of U.S. government bonds — was selling Treasurys to generate dollars needed to buy yen as part of its own market intervention.

• All else being equal, Treasury sales by Japan push prices of those U.S. government bonds down, pushing yields — the basis for U.S. borrowing costs — higher.
• Bond yields, so influential to the setting of interest rates that they're referred to as "rates" on Wall Street, move in the opposite direction of prices.
• And higher interest rates can act as a headwind for U.S. economic growth.

Zoom in: The so-called joint yen-tervention worked — at least at first. The yen jumped against the U.S. dollar.

• Subsequent data also showed hedge funds that had been betting against the yen abandoned positions in response to the move.

Yes, but: The return of selling pressure could mean more action is needed from the U.S. to show that it has the resolve to pour more resources into the markets to stabilize another country's currency.

• "If it becomes clear that the Treasury is trying to limit its participation and exposure, the market may regain courage to short JPY again," wrote Steven Englander, a currency market analyst with Standard Chartered Bank, using the abbreviation for the Japanese yen.

The bottom line: That may already be happening.

Intel jumped on the piping hot equity sale bandwagon yesterday, announcing that it is selling $15 billion in new stock — this morning the chipmaker upsized the offer to $20 billion, priced at $95 per share.

Why it matters: Intel is on an epic comeback run this year, thanks to the AI boom.

The big picture: The stock market is at all-time highs, and companies that have seen their stock prices surge this year are seizing the moment.

• Though it's fallen back from its record high in June, Intel's share price is still up an insane 150% this year to date — riding high on the AI boom and the U.S. government's support.

Zoom out: US. companies issued a record $252 billion in stock in the second quarter, through IPOs, SPACs and convertible bonds.

• That includes $105 billion in follow-ons, when U.S. companies that are already publicly traded, like Intel, sell more shares.

Between the lines: Companies need the cash to finance the AI buildout, as Matt wrote earlier this year.