Sandisk (SNDK 5.69%) has been one of the hottest stocks in the market, but a 14% pullback from highs hit in early February could be a buying opportunity. And despite its recent highs, the stock is still not expensive, trading at a forward price-to-earnings ratio (P/E) of 15 times analyst estimates for fiscal 2026 (ending June 2026) and just over 7.5 times fiscal 2027 estimates.
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Sandisk's performance is no flash in the pan
The company is a leading producer of NAND storage devices, or flash memory. It is one of the few pure-play ways to invest in this segment of the tech market after the company was spun off from Western Digital about a year ago. NAND has been a very cyclical market over the years, but the space looks like it is at the beginning of what appears to be a long-lasting supercycle.
It was only a few years ago that the NAND market was in complete disarray. After seeing huge demand for electronics stemming from the pandemic, memory makers overbuilt production, causing a huge oversupply in the market that led prices to crash. Things became so bad that NAND gross margins turned negative.
This disarray led many memory makers to hugely cut NAND production and redirect their focus to DRAM (dynamic random access memory). At the same time, the introduction of high-bandwidth memory (HBM), a specialized form of DRAM, began to take off because of its importance in helping optimize the performance of graphics processing units when running artificial intelligence (AI) workloads. HBM comes with strong unit economics, but it needs huge wafer capacity, so it began eating up memory maker resources.
NASDAQ: SNDK
Key Data Points
Rising prices add another tailwind for Sandisk
Soon after, AI data centers also started to need huge, high-performance solid-state drives (SSDs) that use NAND to help store training data. With production slashed and demand now suddenly surging, flash memory prices have been skyrocketing because there is now a huge NAND shortage. Given the economics and demand for HBM, along with growing demand for NAND, these market dynamics are unlikely to shift anytime in the near future.
With flash memory in short supply, Sandisk continues to benefit from increased prices, which are also dramatically lifting its gross margins and profits. Last quarter, its revenue jumped 61%, while its gross margins expanded from 32.3% a year ago to 50.9%, leading its adjusted earnings per share to surge fivefold.
With the NAND market going from a cyclical business to a structural growth story on the back of AI data centers, Sandisk finds itself in an enviable position. And with the boom in AI infrastructure spending, the company is set to see huge growth ahead. This makes the recent dip a buying opportunity.
