Sandisk (SNDK -3.69%) stock slumped 3.8% through 10:05 a.m. ET Thursday morning, giving back all the gains the stock enjoyed from yesterday's endorsement by Citigroup.
I think that's a mistake.
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What Citi said about Sandisk
Citi analyst Asiya Merchant yesterday reiterated her buy rating and $2,100 price target on Sandisk stock (which now costs less than $1,700), and the arguments should sound familiar to anyone who's been following the stock this year.
Growth in artificial intelligence is driving demand for NAND flash memory chips, and Merchant believes the longer-term demand trends look favorable for the stock -- both from hyperscalers building out their data centers and from ordinary, non-AI companies as well.
Merchant specifically anticipates NAND demand will grow from smartphones, PCs, "and other edge devices," as StreetInsider.com reports, beginning sometime next year. The reason: mobile devices are increasingly "AI-enabled," allowing them to provide AI services directly on the device without needing to communicate with the internet immediately. For this to happen, devices require more memory -- driving NAND demand even beyond the usual data centers.
NASDAQ: SNDK
Key Data Points
What it means for Sandisk stock
All these trends will come together to drive mid-teens annual growth in NAND demand, argues Merchant. (Growth in prices per unit and in profits for Sandisk should be higher than that.) And as buyers recognize the new low-supply, high-demand environment they're in, she anticipates they'll be more willing to sign multi-year purchase commitments.
This implies that Sandisk's profit margins are going higher, and will stay higher longer.
TL;DR, Sandisk is no longer just another cyclical semiconductor stock subject to booms and inevitable busts. And at a share price less than 24 times trailing earnings, Sandisk stock is a buy.
