Sandisk (SNDK +3.92%) stock skyrocketed a remarkable 3,710% since its spin-off from Western Digital in February last year. Investors have been buying its shares hand over fist, which isn't surprising as Sandisk emerged as one of the most important players in the artificial intelligence (AI) infrastructure ecosystem.
Investors, however, may be wondering whether SanDisk's stunning rally over the past year pushed the stock into bubble territory. Let's take a closer look at the company's performance and prospects to determine whether it is in a bubble or is one of the best ways to capitalize on the AI infrastructure boom.
Image source: The Motley Fool.
Analysts are expecting stronger growth from Sandisk following its latest results
Sandisk stock's multibagger performance has been supported by eye-popping improvements in its revenue, margins, and earnings.
Data by YCharts.
There are two simple reasons behind Sandisk's phenomenal growth.
First, AI workloads are driving exponential growth in storage demand. According to McKinsey, the increasing complexity of large language models will lead to an 18x increase in demand for solid-state drives between 2024 and 2030 to 127 exabytes (EB). Meanwhile, the storage demand in AI inference servers is anticipated to jump from 6 EB in 2024 to 447 EB in 2030.
Second, there isn't enough supply available to support this massive jump in demand. Memory industry giants Samsung and SK Hynix note that the supply shortages could last until next year, or even longer. Even though memory manufacturers are investing in new capacity, demand growth is way stronger.
NASDAQ: SNDK
Key Data Points
This excess demand explains why Sandisk's margins have been booming. What's more, the company is poised to make the most of further increases in NAND flash storage pricing by including a variable pricing element in the long-term supply contracts that it is signing with customers. Sandisk signed three multiyear contracts worth $42 billion in the previous quarter, followed by two more last month (it hasn't disclosed the value of those contracts).
These contracts clearly indicate that Sandisk will benefit from a favorable demand and pricing environment in the coming years, which is precisely why analysts have significantly increased their earnings expectations.
Data by YCharts.
The memory boom should send the stock soaring over the next three years
We have seen that Sandisk's rally has been driven by the stunning growth in its revenue and earnings in the past year or so. Moreover, the chart above shows that analysts have become even more bullish about Sandisk's prospects following its latest quarterly report.
Also, the stock isn't all that expensive right now, even though its earnings are forecast to increase by 21x this fiscal year from last year's reading of $2.99 per share. Sandisk trades at an attractive 19 times forward earnings, indicating that it isn't too late for investors to buy this AI stock.
According to the previous chart, Sandisk's earnings could reach $169.24 per share in fiscal 2028 (which will end in June 2028). Assuming it clocks an increase of just 10% in its earnings in fiscal 2029 (which will end in June 2029) to $186.16 per share and trades at 22 times earnings at that time (in line with the S&P 500 index's forward earnings multiple), its stock price could hit $4,095.
That's 2.7x its current stock price, which means that investors should consider buying Sandisk hand over fist even after its massive gains over the past year.
