DRAM ETF falls 6.5% after Samsung earnings as expert warns on memory stocks

The Roundhill Memory ETF (DRAM) dropped by over 6% in the premarket, reaching a low of $60.65, as memory shares tumbled following the latest Samsung earnings. DRAM has now dropped by over 25% from its highest point this year, and this trend may continue as a top analyst warns of a potential rotation from memory to hyperscalers.

DRAM ETF drops after Samsung Electronics earnings

Something interesting is happening in the memory industry, where their stocks are falling after publishing strong financial results and boosting their forward outlooks.

Micron stock initially jumped to a record high of $1,246 after releasing its numbers in June, and then erased those gains. It has dropped to $935 in the premarket section.

The same happened today when South Korea’s Samsung Electronics published strong financial results. Its numbers revealed that its operating profit jumped to 89.4 trillion won ($58.4 billion), higher than the 57.2 trillion it made in the same period last year. 

Samsung said that its revenue soared to 171 trillion won from 133.9 trillion in the previous quarter and more than double from the same period last year. This growth was boosted by soaring memory demand and prices. 

The management expects that demand and prices will continue rising this year amid rising data center deployments. 

Therefore, the stock retreated possibly for two reasons. First, the stock has been in a strong rally this year, with earnings being a good place for these investors to book profits. This is a situation where investors buy an asset ahead of a major event and then sell when it happens. 

Second, some major negative news remain in the industry. For example, there was a report that Meta Platforms was considering selling its extra capacity, raising concerns about future growth. This expansion could be a sign that the company over-expanded and is not seeing a robust earnings boost. 

On the positive side, it could be that it sees an opportunity in being a neocloud company, which may push it to expand its data center rollout. Meta will likely give more information about this when it releases its earnings. 

Other negative news includes a recent lawsuit accusing memory companies of engaging in price fixing and Apple’s application to buy memory from Chinese companies. Such a move would lead to more supplies, which will affect memory companies. 

Top memory stocks are falling today

Samsung earnings led to a freefall in memory stocks globally. In Japan, Kioxia dropped by over 10%, while in South Korea, SK Hynix shares fell by 6%. SK will be in the spotlight this week as it raises funds and lists in the United States. 

The same trend is happening in the pre-market session. Micron stock dropped by 5.47%, while Sandisk stock fell by 5.68%. Western Digital and Seagate shares were also in the red.

This performance exposes the risk that the DRAM ETF faces: it is highly concentrated in one sector and one company can boost or hurt its performance. In this case, the fund is dropping because of one company: Samsung. Most notably, the three biggest companies in the fund account for 75.6% of the entire fund. 

There is a risk that DRAM will continue falling in the near term. In a statement on Monday, Mike Wilson, the top analyst at Morgan Stanley, sees these stock having a correction, with investors rotating towards the hyperscalers.