Since spinning off from Western Digital last year, Sandisk (SNDK 5.38%) has been the hottest stock in the S&P 500. In the past 12 months, the shares are up over 1,600%.
This incredible run is due to its role in the artificial intelligence (AI) ecosystem, as one of the main suppliers of advanced storage devices. These devices are crucial to AI because they allow companies to store and access vast amounts of data needed to train AI models.
Considering just how much Sandisk's stock has surged in the past year, is it too late for investors who weren't around for the current run?
Image source: Getty Images.
One downside of Sandisk's surge is how expensive the stock has become, which leaves little room for error. The stock seems to have near-perfect conditions priced into it that can be hard for Sandisk to sustain.
Right now, it's benefiting from a supply shortage in data center storage devices, allowing it to charge higher prices than it normally would. Once production of storage devices ramps up (especially from competitors), Sandisk's profit margin will inevitably drop, as the company will likely have to decrease prices to remain competitive.
NASDAQ: SNDK
Key Data Points
At its current valuation and given its potential peak performance, there's more downside than upside for prospective investors in Sandisk's stock. I would shy away from it for now.
