- The DRAM ETF stock has jumped to a record high this year.
- Its assets have jumped to a record high of over $12 billion.
- There is a risk that the stock will pullback in the near future.
The Roundhill Memory ETF (DRAM) has done well in the past few months, making it the fastest-growing fund on record. Launched in April this year, the fund has accumulated over $12 billion in assets, as the AI supercycle accelerates. DRAM stock jumped by 120% from its lowest point this year, as most of its constituent companies have reached record highs.
DRAM ETF Stock Has Jumped Amid the AI Supercycle
The Roundhill Memory ETF is a top fund that aims to benefit from the ongoing AI supercycle, which has driven demand for memory chips to a record high.
Most companies in the industry have reported strong financial results this year, with some doubling their revenues on a quarter-on-quarter (QoQ) basis. This growth occurred as demand for memory chips and their prices continued to soar.
Analysts believe that this growth momentum will continue in the coming years, with most companies predicting double or even triple-digit growth for the year. For example, the average estimate is that Micron will generate $110 billion in revenue this year, up 195% from the previous year.
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Similarly, analysts predict that SanDisk’s revenue will jump by 165% this year to over $19 billion, followed by $42 billion next year. Western Digital’s revenue is expected to jump by 35% this year to $12.86 billion, followed by 36% to $25 billion next year.
Analysts are optimistic that demand for memory chips will continue to soar in the coming years as hyperscalers continue to boost their spending. For example, the top companies in the industry are expected to spend over $750 billion on capital spending this year, with some of these funds likely to go toward memory.
This growth explains why these memory stocks have soared this year, with Samsung, SK Hynix, and Micron achieving a $1 trillion market cap. SanDisk stock has soared to a record high, with its 12-month gains being over 4,100%. A $25,000 investment in the company 12 months ago has jumped to over $1 million.
Roundhill Memory ETF Faces Some Major Risks
Still, DRAM faces major risks that could lead to underperformance in the coming years. The most important one is concentration, as three companies – SK Hynix, Micron, and Samsung – comprise a whopping 77% of its holdings. As a result, a sharp decline in one company will hurt its overall performance.
The other main risk is that, despite having 15 companies, this ETF is not sufficiently diversified. The implication is that a major negative news, such as a chip price retreat, will affect all of them. In other words, as these stocks have soared during the AI supercycle, they are likely to retreat when it ends.
Additionally, there is always a risk of investing in companies that have diverged substantially from their historical averages. In most cases, this leads to mean reversion, a situation in which stocks retreat. Therefore, while DRAM stock may continue to rise, there is a risk it could drop over time.
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