DRAM Stock Drops 25% as Its Biggest Risks Start Unfolding

The Roundhill Memory ETF (CBOE: DRAM) has suffered a big pullback this month, falling by 25% from its all-time high, as key risks in the memory industry starts to unfold.

DRAM, which was launched in April, is still up by 125% from its record low, with its assets under management (AUM) at $22.16 billion.

It has become the fastest-growing ETF to cross the $20 billion milestone.

Its growth is primarily driven by strong demand for memory products and chips, with its constituent companies posting some of the strongest growth metrics in the corporate sector.

A good example is Micron (NASDAQ: MU ), which recently reported strong earnings.

Its revenue jumped 303% year over year in the third quarter to $41 billion, while management expects fourth-quarter revenue to reach $50 billion.

Analysts expect its annual revenue to increase by 246% to $129 billion this year, followed by another increase to $236 billion next year.

Sandisk (NASDAQ: SNDK ), a top maker of memory devices, is expected to make $19.75 billion this year, followed by $44 billion next year.

The same trend is happening with other companies, including South Korea’s Samsung and SK Hynix.

Most of these firms are sold out for the year, which is pushing their prices higher.

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Its main risk is concentration, where the top three constituents – Micron, Samsung, and SK Hynix – account for 75% of the fund.

As a result, there are growing concerns that a major setback, such as a revenue miss, could negatively affect the fund.

Another potential risk is that Samsung and SK Hynix have led gains in South Korea, where margin trading has surged.

Historically, stocks fueled by investor euphoria and FOMO have often retreated after the initial excitement subsides.

There is also risk that the robust data center buildup is starting to lose momentum.

For example, Meta Platforms (NASDAQ: META ), one of the biggest players in the data center industry, is considering selling its extra computing power.

There are also signs that the prices of some memory products is starting to cool.

A recent report showed that DRAM contract prices will rise by between 13% and 18% quarter-over-quarter in Q3, with NAND rising by between 10% and 15%.

Strong growth, but lower from second quarter’s 60% growth.

In line with this, historically, memory devices and chips have always been cyclical, with periods of strong demand and high prices being followed by oversupply, high inventory builds, and low prices.

Some companies like Sandisk have moved to reduce this by entering multi-year agreements with customers, but if prices fall, it will also be impacted.

DRAM stock chart | Source: TradingView Technically, DRAM has been flashing red for a while as it has been forming a bearish divergence pattern since May.

This pattern forms when an asset price is rising as oscillators like the Relative Strength Index (RSI) move downwards, as the chart shows.

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