DRAM ETF at risk as SK Hynix, Micron, SanDisk stocks plunge despite inflows

The Roundhill Memory ETF (DRAM) has been in a free fall this week, reaching its lowest level since May 7 this year. It has plunged by over 43% from its highest point this year. This retreat may continue after the latest SK Hynix earnings, which pushed its stock to its lowest level since April 30th. 

DRAM ETF at risk as SK Hynix stock drops

The Roundhill Memory ETF has been in a strong sell-off this month as top memory companies continued plunging. This retreat may continue after SK Hynix, a top constituent, continued its downfall in South Korea.

SK Hynix stock dropped to 1.25 million won, its lowest level since April, after publishing its financial results. Its stock plunged after the company signalled a surge in capital expenditure, which will hit $31 billion, a 50% surge. 

The company said that its revenue and margins jumped, even as the profit came short of expectations. This growth is happening because of the ongoing demand of its memory products, which analysts expect will continue in the near term. 

SK Hynix’s stock has also plunged amid the ongoing deleveraging in South Korea, where many retail and institutional investors have borrowed heavily. Indeed, a senior South Korean minister apologized as many South Koreans who have lost a fortune in the past few weeks.

SK Hynix has a major influence on the DRAM ETF since it is the third-biggest constituent, with a 22% stake. Micron and Samsung, the other large companies in the fund account for 27% and 24%. 

Top memory stocks have plunged ahead of their earnings

The ongoing DRAM ETF crash is happening as other top companies in the memory space drop ahead of their earnings report. Kioxia Holdings stock plunged to 38,380 yen, down by 65% from its highest level this year. This sell-off accelerated ahead of its earnings report.

In South Korea, Samsung Electronics stock has plunged because of the ongoing deleveraging and focus on other companies. It has dropped ahead of its final second-quarter results, which will provide more details than the preliminary one.

Micron stock has dived by 35% from its peak, while other top names like Sandisk, Western Digital, and Seagate Technologies have fallen by double digits. 

DRAM ETF inflows continue

Still, despite these jitters, investors have continued allocating capital to the Roundhill Memory ETF. Data shows that the fund has had $160 million in inflows on July 27. It has added over $7.4 billion in inflows in the last month, with only a single day of outflows in this period.

DRAM inflows | Source: ETF Db

One reason for this optimism is that analysts have maintained their bullish outlook about the top names in the fund. For example, DA Davidson and Susquehanna analysts have boosted their Micron stock target to $2,000, a big increase from the current $820. The average estimate among analysts is $1,268, up by 54% from the current level.

All analysts tracking SanDisk have a buy rating, with Susquehanna having a target of $3,050, much higher than the current $1,278. Wells Fargo targets $1,620, while Evercore seeing it rising to $3,100. 

The general view among analysts is that the artificial intelligence industry has more room to run as more companies continue spending. The estimate is that companies like Amazon, Google, and Microsoft will spend over $750 billion in capital expenditures this year. It is estimated that these firms will spend over $5 trillion by 2030, with some of these funds going to memory companies.