Artificial intelligence (AI) pioneer Nvidia (NVDA +4.30%) had a poor start to 2026, with shares of the chip giant dropping 6.5% in the first quarter despite the healthy growth the company has been clocking.
The drop in Nvidia stock seems unjustified, as it expects growth to accelerate this year due to robust demand for its latest AI processors. The good news for investors is that Nvidia trades at an attractive valuation, just 21.5 times forward earnings, despite analysts forecasting an impressive 74% spike in earnings this year.
So, Nvidia looks like an attractive buy right now. However, there's another AI stock that's cheaper than Nvidia and has been clocking bigger earnings growth: Sandisk (SNDK +6.16%). The memory specialist's stock jumped a whopping 167% in Q1, significantly outpacing Nvidia's returns.
Importantly, Sandisk could continue to outperform Nvidia in Q2 and even become the best-performing AI stock of the quarter. Let's look at the reasons why.
Image source: Getty Images.
Flash storage prices are poised to spike significantly in Q2
Sandisk makes flash memory data storage products such as solid-state drives (SSDs), memory cards, and USB drives. The demand for its products, especially from AI data centers, has been exceeding supply significantly.
NASDAQ: SNDK
Key Data Points
Sandisk's peer, Kioxia, noted in January 2026 that it had already sold out its 2026 NAND flash supply. Even Sandisk management noted on the January earnings call that it sees "customer demand well above supply beyond calendar year 2026." The excess demand has been driving up NAND flash prices.
Market research firm TrendForce anticipates a 70% to 75% increase in contract prices for NAND flash memory in the current quarter from Q1 levels. That's higher than the 60% jump in NAND flash prices in Q1. So, it won't be surprising to see Sandisk's phenomenal earnings growth continuing.
The company's non-GAAP (non-generally accepted accounting principles) earnings in the second quarter of fiscal 2026 (which ended Jan. 2) shot up by 5 times year over year to $6.20 per share. Its forecast of $12.00 to $14.00 earnings per share for fiscal Q3 would be a massive improvement over the $0.30 loss per share in the year-ago period. As the price of NAND flash memory is poised to increase at a stronger pace in calendar Q2, there is a robust possibility that Sandisk will deliver outstanding guidance when it releases its quarterly report later this month.
Sandisk deserves a premium valuation
Analysts are expecting Sandisk's earnings to jump by a whopping 64 times year over year in the fourth quarter of fiscal 2026 (which has just begun and coincides with calendar Q2) to $18.63 per share. That points to a sequential increase of 43% from the midpoint of fiscal Q3's earnings-per-share guidance of $13.00 per share.
However, Sandisk could do better than that due to the acceleration in NAND flash price growth. What's more, the stock trades at just 13.8 times forward earnings, a big discount to the 20 times average forward earnings multiple of the S&P 500 index. Sandisk deserves a premium valuation, given the market-beating earnings growth it is clocking.
All this suggests that this AI stock is likely to sustain its red-hot momentum in Q2 and make investors richer once again.
