Why isn't production scaling to meet demand? Shouldn't the market address this.

Because:

1. Factories take time to build.

2. Building factories requires capital to be invested now.

3. The return-on-capital will only be obtained in the next n years.

4. But if demand goes down, we'll have much more supply than demand, leading to a cutthroat price competition, which could prevent the factory costs from ever being recouped.

Because when the AI customers explode N months down the line, you don't want to be on the hook for a new factory.

Building production facilities isn't like flipping a switch.

Production was close to maximum anyway because of existing demand and how expensive new fabs are to bring up. The boom in AI use wasn't sufficiently planned for as it wasn't expected at the scale we are seeing, so to scale up means building more fabs - a long and expensive task. The situation is not helped by one of the AI companies successfully negotiating huge deals for a year worth of production with the two biggest providers at the same time and keeping it secret enough that neither bumped up prices in the deal as a result of knowing what the play was.

Most players are rational actors and this isn't their first time in this sort of market. Getting more production online if you do not have slack like downtime takes quite a while. And there is no guarantee that they can sell the new production even at previous rates if they end up in over supply.

Generally people just don't understand how long ramping up new production facilities can take and what is the realistic pay off period for them.

Adding to what others have said, several hdd, ssd and ram manufactures have said that they don't believe demand will be sustained in time for long enough to warrant extra investments in increasing production.

Building these factories goes way beyond "nontrivial". We may see a few come online in a couple of years though, but time will tell if the extra capacity alleviates the crunch.

It is the law of inertia, it applies to many more situations than we think. Markets is one of the, especially large-scale ones.

Because the manufacturers of storage (and RAM) consider it to be an AI bubble, too. The surge in demand is a short burst, not a sustained one. Hence it makes no sense to throw a whole lot of ressources into scaling up production, when the demand won't be there anymore in 1-2 years when the factories will be ready.

A chip fab costs a billion dollars to build.

Free markets, yes

Why isn't magic just doing the magic things the capitalists always tell us is magic?