Sandisk (SNDK -11.02%) stock crashed 11.7% through 1:10 p.m. ET Monday, and it's not hard to guess why:
The Chinese are coming to crash the semiconductor memory chip party.
Image source: Getty Images.
Make way for CXMT
Chinese chipmaker CXMT (short for "ChangXin Memory Technologies") held one of the biggest IPOs in recent memory in China this morning, debuting on the Shanghai Stock Exchange and surging 466% on its first day of trading to close with a $487 billion market capitalization.
CXMT is one of two Chinese suppliers of DRAM memory chips, from which Apple (AAPL +1.19%) is seeking to buy as a solution to the global deficit of computer memory. CXMT is capitalizing on this good news -- and on the bad news of the global deficit -- by holding its high-profile IPO today, touting its chips as a solution to the deficit that has driven memory prices sky-high... and driven up Sandisk stock's profits, and its share price, alongside those prices.
NASDAQ: SNDK
Key Data Points
What this means for Sandisk
This isn't an immediate or direct threat to Sandisk.
CXMT specializes in DRAM memory, which is crucial for AI chips to remember information so they can better answer questions for AI users. But it's not the same kind of memory as Sandisk makes, because Sandisk specializes in NAND flash memory. So, to an extent, Sandisk's sell-off today may seem an overreaction.
That said, when CXMT entered the DRAM market, it set off alarm bells, prompting investors to anticipate that the next big Chinese company to enter this market might be one that makes NAND.
And that would be a direct threat to Sandisk.
Long story short, the writing's on the wall now: China is coming for Sandisk's profits -- and Sandisk's 70% operating profit margin is not going to last forever.
