DRAM ETF is at risk of a retreat as outflows rise despite memory boom
The Roundhill Memory ETF (DRAM) has remained in a consolidation phase in the past two months. It was trading at $57 on Friday, down 30% from its highest point this year. This consolidation has coincided with the ongoing performance of top memory stocks in the US, South Korea, and Japan. So, is it a good time to buy the fund?
DRAM ETF outflows are rising
The DRAM ETF has sold off in the past few months as the momentum it experienced shortly after its launch faded. Data compiled by ETF Db shows that the fund has had outflows in the last seven consecutive days. In total, the fund has shed over $1.6 billion in assets in the last 30 days.
These outflows happened as investors continued selling their memory stocks. For example, Samsung Electronics stock dropped to 252,000 won on Monday, down significantly from the all-time high of 374,000 won. This retreat has continued even after the company launched a $80 billion share buyback and released strong preliminary results. Its report showed that it made a $80 billion profit in the third quarter.
Micron, another top company in the fund, also released strong numbers, which showed that its revenue soared by 379% in the fourth quarter to over $54 billion. The company now expects that its annual revenue will jump to $275 billion, followed by $320 billion a year later. Analysts expect that it will boost its share buyback program by over $50 billion in December when the CHIPS Act restrictions end.
Other top companies in the DRAM ETF have reported strong numbers lately. This includes firms like SK Hynix, Kioxia, SanDisk, and Western Digital. Most importantly, they have signaled that the earnings growth will accelerate in the foreseeable future because of the artificial intelligence boom.
DRAM ETF companies are undervalued
Meanwhile, data shows that companies in the DRAM ETF are highly undervalued. SanDisk has a forward price-to-earnings ratio of 7.36, while Micron has a multiple of 8. Western Digital has a forward multiple of 19, lower than the S&P 500 Index’s average of 19.2.
The same is happening in South Korea, where Samsung and SK Hynix are trading with single-digit multiples. This performance is happening because investors fear that the “artificial intelligence” bubble will burst soon. If this happens, companies in the memory space will be among the most exposed.
At the same time, there are concerns that the memory boom will lead to an oversupply, which will lead to lower prices over time. These companies argue that their supply is largely sold out for the foreseeable future. Also, they have inked long-term agreements with their customers, which helps to protect their downside.
DRAM ETF technical analysis
The daily chart shows that the DRAM ETF has remained inside a narrow range in the past few months. It has formed an ascending channel, which is made up of a series of lower highs and higher highs. It now sits along the lower side of this channel.
At the same time, the fund has dropped below the 50-period Exponential Moving Average (EMA), while the Relative Strength Index (RSI) has slumped below the neutral level of 50. Therefore, the most likely scenario is where it breaks out lower, potentially to $50 before bouncing back.
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