Pity investors in Sandisk (SNDK -14.75%) stock -- they just can't seem to catch a break.
For three days running, Sandisk stock has fallen 10% or more. Including this morning's 12.5% crash through 9:50 a.m., the semiconductor stock has lost 31% of its value since Thursday evening. But why?
Image source: Getty Images.
Big trouble in China
The biggest worry for Sandisk investors, I believe, is the risk that Chinese competition on NAND computer memory chips could ruin the company's high gross profit margins, which topped 78% in the most recent quarter. Yesterday, Chinese chipmaker CXMT (short for "ChangXin Memory Technologies") IPO'ed in Shanghai at a $487 billion market capitalization, raising more than $8 billion in new cash that the company can use to build new factories, expand DRAM production, and help to end the global memory deficit that has helped to inflate profits for companies like Micron (MU -8.98%) and Sandisk.
Apple (AAPL +0.73%) has already expressed interest in buying memory chips from CXMT. And while CXMT's focus on DRAM chips doesn't pose a direct threat to Sandisk's NAND business currently, there's no guarantee CXMT won't expand into NAND -- or that other Chinese companies won't attempt similar IPOs to bolster their own efforts to steal Sandisk's market share, and compete with it on price.
CXMT's IPO could simply be a portent of risks to come.
NASDAQ: SNDK
Key Data Points
The bigger picture for Sandisk
At the same time, Wolfe Research warns today on StreetInsider that investors are broadly concerned about the health of the artificial intelligence economy: whether, even if Sandisk manages to keep its prices high, AI companies will be able to keep paying that high price -- or will be forced to cut spending.
If AI infrastructure budgets start to get cut, you can bet Sandisk's share price will get cut as well.
