Why Direxion Daily Semiconductor Bull 3X ETF Dropped
Key Points
Micron stock and others sink on worries about competition from SK Hynix.
SK Hynix raised a lot of cash and will use it to double DRAM production, potentially hurting DRAM prices.
It's 12 noon on Monday -- do you know where the Nasdaq is?
It's down 1% at the moment -- but the Direxion Daily Semiconductor Bull 3X Shares ETF (NYSEMKT: SOXL) is down much, much more, tumbling 11.6% as investors worry over how long the bull run in computer memory stocks can last.
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SK Hynix excites the market -- then scares it
Memory giant SK Hynix (NASDAQ: SKHY) just raised $26.5 billion from a Nasdaq stock sale. On the day the listing went live, SK's CEO boasted his company will enjoy windfall profits from servicing "the worst-ever supply shortage" of computer memory in 2027 and will continue enjoying high profits through 2030. This news drove SK stock up 14% Friday.
Now SK's dropping, and dragging other computer memory makers with it. Why?
Well, it seems SK is building new factories that will double its DRAM production by 2030. SK is already the second-largest provider of DRAM (with a 29% market share) and the largest producer of high-bandwidth memory (HBM, with a market share of 50%+). If it doubles production, this could short-circuit DRAM prices and hurt profits at smaller producers such as Micron (NASDAQ: MU).
3x the risk, 3x the gain
What does this have to do with the Direxion Daily Semiconductor Bull 3X Shares ETF? Well, like all ETFs, SOXL is made up of individual stocks that go up and down -- and at 3x leverage, when these stocks go down a little (or a lot), the Direxion SOXL ETF goes down even more.
Today's semiconductor losers include Micron, down 4%; Intel (NASDAQ: INTC), down 5%; and Marvell (NASDAQ: MRVL), down 6%. Combined, these three stocks make up 16% of SOXL's holdings.
When these stocks go down -- whatever the news -- it makes sense the SOXL ETF would go down even more.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Marvell Technology, and Micron Technology. The Motley Fool has a disclosure policy.