Rational actors in game know that this demand spike is most likely temporary. So investing in more production only to face glut in future dropping margins to nearly nothing is not rational move.

This has been played out before so it is only natural that they are careful with increasing the supply. And while they don't response they are netting larger margins than before.

Obvious end result is that demand will drop as price goes up. The other natural part of supply-demand curve.

That's economical theory, but the real world is often non-linear.

Crucial is dead. There's a finite amount of rare earth. Wars and floods can bankrupt industries, supply chains are tight.

As far as I can tell, none of the companies producing memory chips are increasing production because they don't know if the current demand is sustainable.

Increasing memory production capacity is a multi-year project, but in a few years, the LLM companies creating the current demand might all have run out of money. If demand craters just as supply increases, prices will drastically decrease, which none of these companies want.

How does this square with some companies just stopping sales to consumers altogether?

The blessing the plebs with eternal wisdom comment.

Take a look at GPU prices and how that "supply increased thus bringing the prices down"

As usual, the problem is: how fast does this happen?

in a fairy world