Important points
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On Tuesday, Micron’s stock jumped almost 20%, giving it a market value exceeding $1 trillion. This surge also propelled the Round Hill Memory ETF back nearly 120% over just two months.
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Rising memory shortages, fueled by the soaring demand for AI data centers, have significantly boosted both industry profits and stock prices throughout the last year.
This week saw a remarkable rally in memory stocks, resulting in two companies reaching the trillion-dollar mark in just 24 hours. Micron’s stock saw a nearly 20% increase on Tuesday, surpassing a $1 trillion market value. Following this, South Korea’s SK Hynix also experienced a notable stock rise on Wednesday, becoming the second company from the region to achieve a $1 trillion valuation, mirroring what Samsung accomplished earlier this month.
The Round Hill Memory ETF, known as drum, has increased by 118% since launching in early April, making it the best-performing non-leveraged U.S. equity ETF this year. This rapid growth helped the fund accumulate $10 billion in assets under management in just 43 days, breaking the previous record held by the iShares Bitcoin Trust ETF by a week.
Why this is important
Over the past year, memory stocks have become essential in building AI data centers and driving the AI-powered market up. The momentum surrounding companies like SanDisk and Micron has attracted substantial investment, as funds seek out the next emerging niche within the AI sector.
This fund reached total assets of $11.6 billion as of Tuesday, drawing in nearly $7.5 billion from investors last month, ranking it as the third most popular stock fund in the U.S. Among all S&P 500 funds, only Vanguard and State Street saw larger inflows during this timeframe.
The demand for AI data centers has led to a significant rise in memory device prices. For instance, prices for high-bandwidth memory chips from Micron and hard drives from companies like SanDisk and Western Digital have escalated. Notably, SanDisk’s stock has surged nearly 4,000% in the past year, while Western Digital and Micron experienced increases of 920% and 840%, respectively.
Even with substantial profits, many investors believe there’s still potential for further stock growth, as earnings have largely matched stock performance. Micron’s revenue saw a notable 770% increase, while SanDisk’s sales jumped 350% from the previous year.
David Miller, chief investment officer at Catalyst Funds, remarked that Micron “is still likely to trade at less than 10 times forward earnings,” suggesting the potential for continued value.
The significant rise in DRAM prices has led to the emergence of various funds, with five ETF providers seeking to launch similar products since early April. Some of these offerings are not for the faint-hearted. One, the Direxion Daily DRAM Bear 2X ETF, would have dropped about 30% on Tuesday when DRAM surged nearly 15%. Competing ETF providers like Krane Shares, Defiance, and Tidal have submitted applications to introduce DRAM-related funds.
The success of the Round Hill fund has motivated the company to explore additional facets of the AI industry, such as proposing three new AI-centric funds last week. One fund focuses on computing by investing in futures contracts related to computing power, another targets cloud computing firms that handle AI workloads, and a third is the Photonics and Optics Fund, which seeks to invest in companies advancing optical networking technologies necessary for rapid data transmission in AI applications.
