Key Takeaways:
A 14% single-day plunge in Sandisk shares erased about $44 billion in market value, but the sell-off says more about AI hardware sentiment than memory demand.
Sandisk Corp. shares tumbled 14% on July 2, closing at $1,745, as a global rout in memory chip stocks swept through Micron Technology, Samsung Electronics and SK Hynix on fears that AI computing supply is catching up with demand.
"The sell-off was triggered by a report that Meta Platforms plans to sell spare AI computing capacity to outside customers, which traders interpreted as a signal that the compute shortage is easing," said Daniel Sparks, an analyst covering semiconductor stocks. "Nothing about Sandisk's own business changed on July 2."
The drop came despite Sandisk reporting record fiscal third-quarter revenue of $5.95 billion, nearly doubling from the prior quarter, with adjusted gross margin surging to 78.4% from 51.1%. Data center storage revenue tripled to about $1.5 billion, and the company has signed multiyear supply agreements worth $42 billion in minimum contracted revenue. Management guided for fiscal fourth-quarter revenue of $7.75 billion to $8.25 billion, well above the quarter it just reported.
The question for investors is whether the 25% peak-to-trough decline marks a healthy reset in a stock that had risen more than 700% this year — or the first sign that the memory cycle is turning. Sandisk trades at about 59 times trailing earnings, though that multiple compresses to roughly 12 times forward earnings if the company sustains its current profit trajectory.
The Fundamentals Tell a Different Story
Sandisk, spun out of Western Digital last year, makes NAND flash memory — the storage chips that increasingly feed AI data centers. Unlike the high-bandwidth memory (HBM) grabbing headlines, NAND stores the outputs that AI models generate. Enterprise storage drives have become a booming business as hyperscalers race to build out infrastructure.
The company's fiscal third-quarter results, for the period ended in early April, showed revenue of $5.95 billion, up 251% year over year and beating consensus by 25.68%. Non-GAAP earnings per share reached $23.41 against a $14.66 estimate. The data center segment alone posted $1.47 billion in revenue, up 645% from a year earlier, as AI hyperscalers bid up NAND supply.
Management has also retired $650 million in debt and now runs a zero long-term-debt balance sheet. Free cash flow hit $2.99 billion in the quarter. Forward guidance for the fiscal fourth quarter calls for revenue of $7.75 billion to $8.25 billion and non-GAAP EPS of $30 to $33.
Why the Cycle Question Won't Go Away
Memory has always run in booms and busts, and NAND flash has historically been one of the most commoditized, price-sensitive corners of the chip world. Prices spike when supply is short, then crater when the industry overbuilds. The $42 billion in contracted revenue provides some cushion, but it does not eliminate the risk of cyclicality.
Analysts remain bullish. Bernstein raised its target to a street-high $3,000, citing a fundamental shift in Sandisk's business model. Bank of America set a $2,500 target, noting that multiyear contracts help the company avoid the spot-market volatility that has historically plagued the memory industry. Citi and Cantor Fitzgerald also boosted their targets to $2,500 and $2,900, respectively.
Yet technical signals are flashing caution. The stock's Relative Strength Index (RSI) has formed a bearish divergence, falling from 81 to 46, and the price remains far above its 100-day moving average of $1,285. Some traders see a Wyckoff distribution pattern, suggesting the stock may have entered a markdown phase.
For investors, the central tension is between Sandisk's extraordinary fundamentals and the memory industry's long history of punishing those who mistake a cyclical peak for a new normal. The stock's forward P/E of roughly 12 times — assuming the company sustains its current earnings trajectory — suggests the market is already pricing in a downturn that has not arrived. But with DRAM and NAND contract price growth cooling from 60% in the first quarter to 18% and 15% respectively in the second quarter, the trajectory bears watching. Samsung's quarterly results, due this week, will provide the next major read on whether the pricing thesis holds.
This article is for informational purposes only and does not constitute investment advice.
