Cathie Wood says ARK avoids memory-chip stocks due to ‘vicious’ cycles

The selloff in chip stocks is continuing for a second consecutive day in the U.S. Hard-drive component makers have taken the biggest hit, Bloomberg notes: Seagate Technology shares plunged as much as 7.9% on Tuesday, while Western Digital fell as much as 5.5%. Micron is down around 4% as of this writing, as is SK Hynix’s U.S.-listed shares.

The memory-chip sector is prone to “vicious” boom-and-bust cycles, and the problem could worsen as Chinese companies ramp up production capacity, ARK Invest founder Cathie Wood said amid the selloff. She made the remarks at a meeting with investors in Hong Kong, Bloomberg reports. ARK avoids investing in traditional memory-chip makers, she added.

Investors are selling semiconductor stocks for a second day in a row. The Philadelphia Semiconductor Index fell more than 2% during trading on Tuesday. The tech-heavy Nasdaq 100 is off around 0.5%.

Memory-chip prices can fall quickly when supply outpaces demand, Wood said, noting that ARK avoids investing in traditional chipmakers. Although high-bandwidth memory (HBM) remains in short supply for now, the entry of new Chinese producers threatens to disrupt pricing and amplify price swings across the sector, she added.

“The trend is up, but the cycles are vicious,” Wood said of the memory market. If “you get a few more incremental competitors, especially out of China, the volatility will increase.” She also shared that ARK finds China’s tech sector less attractive than its counterparts elsewhere. That is partly because Beijing’s campaign against “involution,” or price wars and excessive competition, cannot address deflation or shield the economy from a deep property downturn.

Wood also pushed back against Broadcom CEO Hock Tan’s warning that the AI trade has become speculative. She dismissed fears of a market bubble, expressing confidence that AI will deliver massive productivity gains.

South Korea’s SK Hynix and Samsung Electronics, along with U.S.-based Micron Technology, dominate advanced memory supply and HBM packaging. Meanwhile, state-backed Chinese producers such as ChangXin Memory Technologies (CXMT) are rapidly ramping up output of dynamic random-access memory to capture market share, Bloomberg noted. On Monday, CXMT, China’s most valuable company, also reported progress in developing a memory-cell architecture, a technology that Micron and SK Hynix are also working on. SK Hynix and Samsung shares plunged following the news. CXMT’s announcement roiled the semiconductor space in the U.S. and Europe. The selloff in chip stocks, which began in the U.S. on Monday, spread to other regions.