The Roundhill Memory ETF (DRAM) slumped by double digits today as its top constituent companies, such as Micron, SanDisk, and Western Digital, tumbled. DRAM fell to $59.25, its lowest level since June 10, and 27% below its all-time high.
DRAM Crashes as Memory Shares Dive
The Roundhill Memory ETF has become the fastest-growing fund in history, with its assets soaring to over $25 billion in less than three months.
This surge occurred as investors piled into companies that make memory chips, which have become essential during the ongoing artificial intelligence (AI) boom.
A look at the stock market in the United States, South Korea, and Japan shows that memory companies are among the best performers this year. In the US, Sandisk, Micron, and Western Digital are among the best gainers.
Similarly, in Japan, Kioxia is the top gainer, while in South Korea, SK Hynix and Samsung are thriving, with their valuations crossing the $1 trillion mark.
These stocks have soared due to the ongoing memory shortage, pushing them to record highs. Recently, Micron said its revenue jumped to $41 billion in Q3 and predicted it will hit $50 billion in the last quarter. All these companies are experiencing triple-digit returns.
The challenge, however, is that signs indicate the industry is facing turbulence. Apple has already warned that it will raise prices on its next iPhones and MacBooks. And this week, media reports said that it was pushing the Trump administration to allow it to import Chinese memory products.
If this happens, it means other companies will also be able to import these products from China. Still, some Senators, including Tom Cotton, have warned that this will be a bad idea. Instead, they are pushing for memory companies to expand to the United States.
The stocks also plunged after a group of PC makers sued them for manipulating the memory industry. This lawsuit was filed in California and may force the companies to explain their strategies.
At the same time, investors are concerned about the recent announcement that Meta Platforms was considering selling its extra space to other companies. This could be a sign that it overexpanded in its data center rollout.
DRAM ETF Has a Major Flaw
As we have written before, the Roundhill Memory ETF has a major flaw in its construction. That’s because it tracks 15 companies within a single industry. Three of these companies – Samsung, SK Hynix, and Micron – account for over 70% of the fund.
This means the fund will continue to do well as long as the three companies are thriving. The risk, however, is that the three firms are in the same industry, and a major challenge, such as falling memory prices, will affect their performance. Experts always recommend investing in ETFs in diversified industries.
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There is also the risk of soaring leverage, especially in South Korea. A recent report by Citi showed that household debt has jumped sharply in recent months. This growth was driven by relatively low interest rates and by many South Koreans moving into the stock market. In most cases, this binge borrowing does not end well.
DRAM Stock Formed a Bearish Divergence Pattern
Technicals also explain why the DRAM ETF has crashed lately. It formed a bearish divergence pattern, which happens when oscillators like the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) are falling while the price is rising. It often leads to more downside.
The stock has now slumped below the lower side of the ascending channel and the 50-day moving average. Therefore, DRAM shares will likely drop further and hit the key support level of $50.
READ MORE: Here’s Why SK Hynix, Kioxia, and Micron Stocks Are in Freefall
