The Roundhill Memory ETF (DRAM) retreated for the second consecutive day as jitters in the memory industry accelerated. The fund, which has become a $24.3 billion behemoth, retreated to $62.45 in the pre-market, down by 22.75% from its highest point this year.
Why the DRAM ETF is falling
DRAM is a top ETF that gives investors access to the biggest companies in the memory industry. It tracks companies mostly from the United States, Japan, and South Korea.
The biggest names in the fund are companies like Samsung Electronics, SK Hynix, Micron, SanDisk, and Kioxia. Its three biggest companies account for about 73.4% of the fund, presenting a major risk to the fund if things go south.
There are signs that the situation in the memory industry is changing. For one, a report on Wednesday suggested that Meta Platforms was considering starting a cloud business to sell its spare capacity.
The term “spare” sends a major warning to investors as Meta has become one of the biggest spenders in the AI industry. It plans to spend between $125 billion and $145 billion in capital expenditure this year. Most recently, it announced a $27 billion deal with Nebius, one of the top players in the neocloud industry.
READ MORE: DRAM ETF is firing on all cylinders, but beware of major risks
Therefore, there is a risk that the industry is starting to peak, which may lead to a slowdown in the memory industry that has powered their prices in the past few years. In a note, analysts at DA Davidson said:
“If Meta slows down Capex and starts monetizing it, we see significant upside to revenue and cash flow. It could stay in the AI race by going back to its open source roots.”
The DRAM ETF is also facing major challenges amid reports that Apple was putting pressure on the Trump administration to allow it to buy memory chips from large Chinese suppliers. Such a move, if it is accepted, would lead to a higher supply for chips, affecting their prices.
The ETF is also falling after a new report on SK Hynix. According to Bloomberg, the CSOP Sk Hynix Daily (2x) Leveraged Product has accumulated over $13 billion in assets and is beginning to move the stock it was created to track.
There are concerns that the growing leverage in South Korean equities will trigger a retreat in the coming months as traders start to unwind them.
A recent report showed that household loans in South Korea rose by KRW 9.3 trillion in May, up from KRW 3.5 trillion in April, the fastest growth since August 2024. Citi noted that the surge was largely attributed to the growing demand for equities.
Bullish divergence pattern forming
DRAM stock chart | Source: TradingView
The DRAM ETF is also at risk after forming a bearish divergence pattern, which happens when key oscillators fall when assets are rising.
In this case, as the four-hour chart shows, the Percentage Price Oscillator (PPO) has been falling since May 11 when it peaked at 10.4%. Similarly, the Relative Strength Index (RSI) has been falling, moving from the overbought level of 89 to the current 43.
A bearish divergence is normally followed by price weakness, which explains why the DRAM stock is falling today.
The decline is also happening as investors book profits in these memory stocks, which have been the best performers in the United States, Japan, and South Korea this year.
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