- The DRAM ETF stock jumped in the extended hours.
- Micron published a blemish-free earnings report.
- The main risk for the ETF is that three names account for 72% of its holdings.
The Roundhill Memory ETF (DRAM) continued its strong rally in after-hours trading after Micron reported strong financial results. DRAM stock jumped to $78.30 from the closing price of $69.93. It has jumped by over 150% since its launch in April this year, with its assets under management rising to $22.50 billion.
DRAM ETF Stock Soars After Micron Earnings
DRAM stock soared after Micron reported strong financial results, pushing its shares up over 15%. In a statement, the company published some of the best results in the US. Its revenue jumped to $41 billion, up by 74% from the second quarter and 346% YoY. These numbers were much higher than its guidance and what analysts were expecting.
Micron’s revenue was driven by its DRAM division, which made over $31.3 billion, up by 67% QoQ. Its NAND business generated $9.9 billion in revenue, up about 100% QoQ, driven by demand from data center operators such as Microsoft and Google.
Most notably, the company’s gross margin jumped to 84.9% from 81% previously. Its net income soared to $28.86 billion, giving it a net profit margin of 68%, higher than Nvidia’s 54%. As a result, it has one of the best rule-of-40 multiples of 414%.
This growth has been driven by the ongoing demand for memory, supply shortage, and price surge. Data show that prices have been on a strong rally over the past few months, with top customers entering multi-year contracts.
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Micron now expects its business to generate over $50 billion in the current quarter, with its gross margin expanding to 86%. In most cases, the actual figure will be higher than analysts expected. In a statement, the CEO said:
“The memory industry has been structurally transformed by the proliferation of AI. We are only in the early innings of the significant innovation and productivity that can be unleashed in every part of the global economy over time.”
DRAM Concentration is a Major Risk
These results are important for the DRAM ETF because it is the largest constituent company, with a 27.7% share. It is followed by top South Korean companies such as SK Hynix and Samsung Electronics, which account for 27.52% and 16.23%, respectively. These stocks will likely soar when the market opens on Thursday.
The risk, however, is that the three companies account for 72% of the fund, a substantial share. For example, the top ten companies in the S&P 500 Index account for 39% of its holdings. Similarly, the top 10 firms in the Nasdaq-100 Index account for 47% of the fund. As such, a minor issue in one of the three firms would have a major impact on the fund.
The other risk is that the DRAM stock has become highly overbought, which may trigger a reversal as investors begin booking profits. This view is offset by the fact that a company like Micron is not overvalued, given its forward PE ratio of 18.
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