The Roundhill Memory ETF (DRAM) has become the hottest fund in the United States this year.
Launched in April, it has surged by over 80% and attracted nearly $10 billion in assets under management (AUM).
It has had inflows in each week since its launch as investors piled into the top gainers in the stock market this year.
DRAM ETF is experiencing phenomenal growth amid FOMO
The Roundhill Memory ETF, which has an expense ratio of 0.65%, is firing on all cylinders, and it is easy to see why. It tracks some of the best-performing companies globally this year.
According to its website, SK Hynix, the giant South Korean company, is the biggest part of the fund with a 28% share.
It is followed by Micron, the leading player in the DRAM and NAND industries, which has a 26% share.
Samsung Electronics, which recently hit a market capitalization of $1 trillion, has a 20% share.
The other smaller constituent companies in the fund are companies like Kioxia, Sandisk, Seagate, Western Digital, Nanya Technology, and Winbond Electronics.
All these are some of the best gainers this year. Sk Hynix has jumped by 177% this year and is up by over 770% in the last 12 months.
Micron has pumped by 162% this year, while Samsung Electronics soared by 124%. Most importantly, SanDisk has jumped by 465% this year.
Therefore, the ongoing DRAM ETF demand is happening as investors chase the ongoing rally amid the AI boom.
Most analysts believe that demand for memory and other chips will continue rising in the coming years as companies boost their AI spending.
The top companies in the United States have hinted that they will spend as much as $725 billion this year.
At the same time, these companies have all published strong results recently.
For example, the most recent results showed that SK Hynix’s revenue jumped by 198% YoY, while its net income soared by 165%.
The management also boosted the forward guidance, pointing to more demand.
Micron’s results revealed that its revenue jumped to over $23 billion, up sharply from the $8 billion it made in the same period a year earlier.
The other companies in DRAM have also released strong numbers and boosted their estimates.
What next for the DRAM stock?
The DRAM stock price may continue to rise this year as the respective stocks surge amid the rising demand.
Most analysts always recommend against going against the trend, especially in periods of extreme exuberance.
There are also no indications that the memory demand is fading. Indeed, most reports released this year show that the industry will continue to fire on all cylinders, as the companies don’t have the capacity to boost their demand.
In the long-term, however, there is a risk that the ETF will reverse as it faces several risks.
The first major risk is its concentration, where three companies account for 75% of the entire fund.
This is risky because if one of them drops, it will have a negative impact on the whole fund.
There is also a risk that the ETF is highly overvalued, with some of these companies trading at elevated multiples.
Most importantly, history shows that FOMO periods don’t end well.
We saw this well during the meme stock era in 2021 when many investors were rushing to companies like GameStop, AMC, and ContextLogic, the parent company of Wish.com. All these stocks have plunged from their highs at the time.
This view is usually explained using the Dow Theory and the Wyckoff Theory.
These theories suggest that financial assets go through different stages, with the current one being the markup.
It will next enter the distribution and markup phases, which are characterized by panic selling among investors.
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