Viral DRAM ETF Stock Just Crashed By 20%, Highlighting Key Risk
Broadcom Limited AVGO | 0.00 | |
Micron Technology, Inc. MU | 0.00 | |
Sandisk Corporation SNDK | 0.00 | |
Seagate Technology Holdings PLC STX | 0.00 | |
Roundhill Memory ETF DRAM | 0.00 |
The viral Roundhill Memory ETF (CBOE: DRAM) has been in the spotlight since going public in April this year. Its stock jumped from $28 to $70 as its constituent companies surged. This growth, together with the inflows, pushed its total assets to over $16 billion.
DRAM stock ended last week at $55.80, down by over 20% from its highest point on record as investors dumped technology stocks. This retreat was steeper than that of the broader market, with the Nasdaq 100 Index falling by 5.9% from its highest point this year.
The strong retreat highlights a key risk in this ETF. For one, the fund is not highly diversified as it is made up of companies in the same industry. This includes popular names like Samsung, Micron (NASDAQ:MU), Sandisk (NASDAQ:SNDK), and Seagate Technology (NASDAQ:STX).
All these companies are in the memory business, which is booming amid the rising demand by top hyperscalers like Microsoft, Google, Meta Platforms, and Amazon. These memory products have seen their prices surge in the past few years as this demand has coincided with shortages.
The supply-demand imbalance is bullish for companies such as Micron and Sandisk. However, the risk for the DRAM ETF is that these favorable fundamentals may not last indefinitely. As memory prices rise, these companies are likely to increase production, leading to greater supply and, ultimately, downward pressure on prices.
The other notable risk for the DRAM stock is its composition. It is made up of 15 companies, with most of them being from the United States, South Korea, and Japan. Its top names are firms like Micron, SK Hynix, and Samsung Electronics, which account for 72% of the fund.
As such, a major issue at any one of these companies has the potential to weigh on the fund’s performance. A good example occurred last week when Broadcom (NASDAQ:AVGO) released its financial results. Despite reporting strong earnings, the stock fell by more than 15%, highlighting how even high-quality blue-chip companies can experience sharp declines when investor expectations are not met.
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