Sandisk (SNDK +14.33%) stock soared for a second straight day Tuesday, exploding 10.5% higher through 10:45 a.m. ET despite the rest of the Nasdaq being in the red.
You can thank Taiwan Semiconductor Manufacturing Company (TSM +5.67%) for that.
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TSMC raises prices
Nikkei Asia reports today that TSMC will raise its prices for contract chip manufacturing (for customers such as Nvidia and AMD, for example) by "up to 10%" in 2027 (with the potential for some chip prices to spike 20%). Nikkei reports that TSMC is making this move to offset "rising costs for materials, manufacturing equipment and construction of new overseas chip plants." But that's just one reason.
The other reason is that TSMC is raising prices because it can.
After all, rising input prices don't automatically allow a manufacturer to raise its product prices. If customers balk at the price, the manufacturer may need to eat the cost of the more expensive inputs -- putting its profits at risk.
This is not the case at TSMC, however. It can raise prices, and it will -- and demand for artificial intelligence remains so strong that its customers will have to pay the higher price.
NASDAQ: SNDK
Key Data Points
What this means for Sandisk
But what does this mean for Sandisk stock? Sandisk makes its own semiconductor memory chips; it's not a TSMC customer. So the connection between the two stocks may not be immediately obvious.
But consider: Demand for AI chips is so robust that TSMC can raise prices by 10% to 20%. AI chips require memory chips to perform inference functions, and Sandisk makes memory chips.
Conclusion: If AI chip demand is strong, then memory chip demand is probably also strong; and if AI chip prices are increasing, then prices for Sandisk's memory chips will also go up.
