Western Digital announced they sold out their entire manufacturing capacity for 2026, due to the AI boom. AI-caused shortages aren’t new; it also happened to memory.

Hard Drive manufacturers’ focus on datacenters isn’t new: the rise of flash memory in consumer systems coincided with the rise of Big Data. With this movement, it’s no secret Seagate and Western Digital focus on servers rather than consumer systems.

But in the past, hard drives were sold to a variety of companies: large server manufacturers like Dell and HPE, smaller whitebox system builders, cloud providers, etc. Now, they’re all gobbled up by Big Tech due to AI being very hardware-intensive at the moment.

While AI can be optimized as DeepSeek has shown, it’s in Big Tech’s current interest to instead buy more hardware, causing shortages. This is an indicator to investors that they’re serious about AI, and in turn, causes the stock price to go up.

But how does this impact small cloud providers?

Preempting Competition (Again)

It’s no secret VPS hosts are being squeezed by the memory shortage and competitive cloud storage providers are no different.

One of our products is the Storage VPS offering 1TB or 2TB of storage at a monthly cost of $5 or $10 respectively. While our server was assembled months prior to the shortage, we are not immune to the shortage.

While it could be a conspiracy, despite the threat of antitrust, Big Tech doesn’t want smaller rivals to run competitive services. Here, if direct anti-competitive actions can’t be used, the supply chain is used to achieve the same goal. This strategy isn’t new, and has been used with the tech job market in the 2010s.

During the 2010s tech boom, there was a shortage of qualified engineers. Big Tech offered sky-high salaries to software engineers to prevent them from leaving for startups, while offering comparatively little work. In fact, some engineers got paid to do nothing.

Startups were strangled of essential talent and couldn’t build a competitive product, cementing Big Tech’s dominance. And when priorities changed, as has happened with the AI boom, many of these engineers were laid off.

Now, Big Tech is preempting cloud competition with the memory and hard drive supply chain.

Conclusion

Shortages are usually seen as a supply-and-demand issue. But with tech, it’s also a weapon used to subvert competition.

From a business perspective, it’s pretty smart. It’s 2027; you might want a Nextcloud cloud storage server, but instead sign up for Google Drive since a hard drive is more expensive than a subscription. And by the time the shortage subsides (assuming it does), you’d be locked in to Google, both technologically and habitually. It’s a win-win for Google and a loss for you and Nextcloud.

But this also means competitors are harmed. For nearly a century, AT&T was a monopoly over American landline telephones where competition was illegal. Sure, they were regulated and had many Bell Labs innovations. But AT&T also refused to build cellular phones or the internet even when asked by the US government, technologies we can’t imagine living without.

If Google and Amazon get too comfortable with their monopolies using the hardware supply chain, it will set technology back decades. The savings from AI coding agents will be offset by oligopoly hosting costs as smaller hosting companies went out of business. And it’s not just hosting companies, consumer electronics are affected too.