The Roundhill Memory ETF (BATS:DRAM) has become one of the fastest launches in history, helped by the ongoing demand for companies in the memory chip industry. 

DRAM has already jumped by over 80% since its launch in April, with its Assets Under Management (AUM) hitting $6.25 billion. This is a big milestone for an ETF with an expense ratio of 0.68%.

DRAM ETF Gains Momentum Amid Sandisk, Micron, Seagate Boom

The Roundhill Memory ETF aims to give investors access to the biggest players in the memory chip industry. It is a highly concentrated fund with just 13 companies, with Micron (NASDAQ:MU) having the biggest share. 

The other top companies in the fund are South Korea's SK Hynix, Sandisk, Kioxia, Seagate, and Western Digital. All these are some of the top gainers in the equities market in the past few months.

Sandisk stock has jumped by 540% this year and by 4,367% in the last 12 months. It has soared by 100% in the last one month. 

Similarly, Seagate Technology (STX) has soared by 55% in the last month and by 177% this year. Micron Technology (MU) has jumped by 153%, while SK Hynix is up by 160% this year.

These companies have soared amid the ongoing Artificial Intelligence (AI) boom that has led to a significant memory chip shortage. A recent report showed that memory prices soared by between 80% and 90% in the first quarter.

The surging demand has driven a significant revenue increase among top manufacturers. SanDisk’s third-quarter revenue jumped 97% to $5.95 billion, with the CEO describing it as an “inflection point” for the company. 

Similarly, Micron's revenue surged by 75% in the second fiscal quarter to $23.5 billion. The management expects that the higher prices and lower costs will lead to a robust revenue and margin growth this year. 

Seagate Technologies also published strong numbers, with the revenue soaring to $3.1 billion. Dave Mosley, the CEO, noted that the company was entering a "new era of structural growth."

Valuations Still Reasonable, But Overbought Conditions Pose A Risk

Memory chip companies have soared as the top spenders in the data center industry continue boosting their capex plans. The top four spenders – Microsoft, Meta Platforms, Amazon, and Google – plans to spend $725 billion this year in capex. Most of these funds will go to GPUs and memory chips. 

Still, some investors are questioning whether the memory chip rally has more room to run. In a recent statement, Michael Burry warned that the industry was in a bubble. 

However, a closer look at some key metrics shows that the valuations are still reasonable. For example, Micron stock trades at a forward PE multiple of just 12, lower than the S&P 500 Index's 21. SanDisk has a multiple of 24, while Western Digital stands at 25.

The risk, however, is that these stocks have become severely overbought, which could trigger profit-taking. DRAM’s Relative Strength Index (RSI) has surged to 83, deep in overbought territory, while Micron’s has reached 84 and SanDisk’s has crossed 80. These stretched conditions, combined with a significant divergence from their historical moving averages, suggest a pullback may be on the horizon.