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Latest Small Island Research Notes
In the Age of AI Inference, a Narrative Shift Is Taking Shape
2026-01-29
Executive Summary
The rapid growth of generative AI has led the market, over the past two years, to focus on memory supply and storage capacity. As AI systems move decisively into an inference-driven phase, however, the fundamental bottlenecks facing infrastructure are beginning to shift.
In inference environments, system costs are no longer determined primarily by model size or total data volume. Instead, they are shaped by how contextual states persist during computation. When large volumes of context occupy high-cost memory tiers for extended periods, the true constraint is no longer raw compute power. It becomes whether unit inference costs can decline as the number of users scales, rather than rising in direct proportion.
As a result, AI inference infrastructure is gradually moving away from a growth model centered on capacity expansion. What may ultimately be repriced is not HBM or storage devices alone, but whether cloud providers and GPU platforms can establish an AI factory efficiency model that is sustainable and predictable over time.
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Latest Small Island Research Notes
In the Age of AI Inference, a Narrative Shift Is Taking Shape
2026-01-29
Executive Summary
The rapid growth of generative AI has led the market, over the past two years, to focus on memory supply and storage capacity. As AI systems move decisively into an inference-driven phase, however, the fundamental bottlenecks facing infrastructure are beginning to shift.
In inference environments, system costs are no longer determined primarily by model size or total data volume. Instead, they are shaped by how contextual states persist during computation. When large volumes of context occupy high-cost memory tiers for extended periods, the true constraint is no longer raw compute power. It becomes whether unit inference costs can decline as the number of users scales, rather than rising in direct proportion.
As a result, AI inference infrastructure is gradually moving away from a growth model centered on capacity expansion. What may ultimately be repriced is not HBM or storage devices alone, but whether cloud providers and GPU platforms can establish an AI factory efficiency model that is sustainable and predictable over time.