Sandisk Corporation (NASDAQ:SNDK) makes flash memory that stores data in phones, laptops, cars, and servers in data centers. The stock has gained 520% this year thanks to the AI buildout that is hungry for memory. Retail investors and billionaires were piling into this stock despite huge gains. SNDK ranks 7th on the list of the 10 best AI stocks to buy according to billionaire Stanley Druckenmiller.
What’s driving SNDK? Data centers need huge amounts of storage, so memory makers moved their chips toward data centers and left less for phone and PC makers. With less supply to go around, prices shot up. Sandisk’s finance chief said about two-thirds of last quarter’s revenue growth came from higher prices and about one-third from selling more chips. Sandisk also signed long-term contracts with big customers that include minimum prices, which gave investors more confidence that the high profits would last.
Bull Case
Sandisk can keep growing because AI keeps raising the need for storage, and the company is still early in selling to data centers. Management has said it started late in this market and is still underrepresented there, so there is room to win more business as it moves more of its output to data center customers. Those customers sign long contracts. Sandisk has eight customers on contracts averaging more than four years, with minimum prices written in, and the company says they cover about half of next year’s output and about two-thirds of the year after.
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Demand also exceeds supply right now, with customers receiving only part of what they order, and the industry added almost no new factory capacity this year.
Photo by Adam Nowakowski on Unsplash
Bear Case
The biggest risk is that the memory shortage ends. Most of the recent growth came from higher prices, and those prices rose because AI demand pulled chips away from phone and PC makers, which created a squeeze. Squeezes like this fade when new supply arrives, and one analyst expects more supply in the second half of 2027.
Memory has a long history of booms followed by busts, and Sandisk’s long-term contracts have never been tested in a downturn. Competitors are moving into the same data center products, and Chinese suppliers are adding capacity, so the data center business could get crowded by 2028. A slowdown in AI spending, or stricter rules on AI, could lead big customers to cut back.
Valuation
Sandisk Corporation trades at a forward P/E of about 8, less than half the S&P 500’s forward P/E of about 19 and about 66% below the sector median of about 24, while its revenue grew about 175% over the past year, against about 10% a year for the market over the long run. The P/E is that low because the market doubts these earnings will last: memory has been a boom-and-bust business, and about two-thirds of last quarter’s revenue growth came from higher prices. Multi-year contracts with minimum prices cover about half of next year’s output and about two-thirds of the year after, which supports earnings, but they have not been tested in a downturn. If memory prices hold up, the stock is cheap.
Despite the huge gains, some still believe SNDK is one of the stocks that will go to the moon.
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