The Roundhill Memory ETF (CBOE: DRAM) has fallen nearly 30% from this year’s high as the memory rally has lost steam. The fund slid to $57.19 as investors continued to sell their holdings.
DRAM has had substantial outflows in the past two months. It has lost assets worth over $1.62 billion in the last 30 days, bringing its assets under management to over $24 billion.
DRAM ETF outflows | Source: ETF Db
The weakness has coincided with the ongoing retreat of top companies in the memory industry. Samsung Electronics stock has tumbled by 30% from the year-to-date high. Similarly, SK Hynix, the biggest player in the high-bandwidth memory industry, has also fallen by 40% from its all-time high.
Other top DRAM constituent companies like Micron Technology (NASDAQ:MU), SanDisk (NASDAQ:SNDK), and Western Digital (NASDAQ:WDC) have already tumbled by double digits from the year-to-date high.
These stocks have fallen, and ETF outflows have jumped as fears grow that the AI bubble could burst as soon as this year. OpenAI’s annualized revenue is below $50 billion, short of the earlier estimate of $70 billion. Top AI companies are also burning through cash at a faster pace.
Additionally, there are concerns about the cyclical nature of the memory industry. Historically, these companies do well for a while, and then the trend reverses as inventories jump and demand starts waning.
Roundhill Memory ETF Has Some Major Catalysts
The DRAM ETF has some major catalysts that may boost its performance. The most notable one is that their revenue growth is continuing. Micron’s earnings report showed that its revenue jumped by 379% in the fourth quarter (YoY).
Similarly, Samsung Electronics’ operating profit jumped by 783% to over $80 billion as the AI boom gains steam. SK Hynix’s revenue surged to over $54.5 billion in the second quarter, with its revenue soaring by 257% from a year earlier. Other companies like SanDisk and Kioxia have also continued rising.
At the same time, top companies in the DRAM ETF are highly undervalued. Micron has a forward price-to-earnings ratio of 8, while SanDisk has a multiple of 7.5. Western Digital has a multiple of 19, while Seagate has 21.
Companies in the DRAM ETF are also returning substantial sums of money to investors. Samsung Electronics has announced a $80 billion share buyback, while SK Hynix will repurchase shares worth over $28.6 billion. Micron also plans to launch a big share buyback in December when the CHIPS Act restrictions ends.
Analysts are also highly bullish on memory stocks. Benzinga data shows that the average estimate for Micron’s stock is $1,463, up by 42% from the current level. Similarly, analysts are mostly bullish on SanDisk and other AI companies.
Additionally, memory companies have learnt their lesson and have executed long-term agreements with their customers. These agreements have floor and ceiling prices, giving them visibility of what to expect in the future.
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