Key insights
- The memory stock rout, exemplified by a 14% drop in the DRAM ETF, signals a potential cooling in AI-related investments. Significant declines in key components like Micron, SK Hynix, and Samsung, coupled with the ETF's high volatility and concentration, suggest broader tech sector weakness. This could lead to a broader risk-off sentiment impacting US equities, especially growth-oriented tech stocks.
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The memory stock rally skidded to a halt on Tuesday as yesterday’s tech sell-off expanded to new industries and countries.
The Roundhill Memory ETF (DRAM) was down about 14% in recent trading after climbing to a record high on Monday. Tuesday’s sell-off erased two days of big gains for the fund.
One of the selling points of an ETF is its diversification. By investing across sectors or buying several stocks within a given industry or theme, investors should enjoy some protection from double-digit losses during sell-offs. But DRAM invests exclusively in companies that design, make and sell memory chips and data storage devices, “the bottleneck of the AI revolution.” Those stocks often move in tandem as Wall Street’s appetite for AI investments ebbs and flows.
That was the case on Tuesday, when Sandisk (SNDK) tumbled 14% to lead the S&P 500 lower. It was followed closely by Micron (MU), down 13%. Western Digital (WDC) and Seagate Technology (STX), two other holdings, were down 9% and 6%, respectively.
DRAM was underperforming most of its largest U.S. components on Tuesday in part because of its massive exposure to tech stocks abroad. SK Hynix and Samsung, which together account for 44% of the ETF, each plummeted 12.5% in Korean trading on Tuesday. Those two stocks and Micron—DRAM’s largest component—cumulatively make up nearly three-quarters of the fund.
Due to its concentration, DRAM is a uniquely volatile fund, delivering investors big daily gains and big daily losses. Shares tumbled more than 15% in a day earlier this month after a surprisingly strong jobs report all but dashed Wall Street's hopes for more interest rate cuts this year. The ETF jumped 8% the following session, and 13% days after that.
Prior to Tuesday, DRAM was up 190% since it began trading in early April, right around the time that memory stocks shook off pressure from the Iran war and went parabolic. The ETF’s huge gains in its first few months made it one of the fastest-growing funds in history. It took just 43 days to reach $10 billion in assets under management. As of Monday, the fund was worth $23.4 billion.