Memory chip stocks came under heavy selling last week after China’s CXMT claimed a chip technology breakthrough. Bloomberg reported that traders fear the move will add Chinese memory supply and set off a price war.
That fear lands on a company whose recent profit jump came mostly from higher prices. Sandisk (NASDAQ:SNDK), the flash storage maker Western Digital spun off in early 2025, got about two-thirds of its fiscal fourth-quarter revenue growth from pricing rather than volume. Yet the stock now trades near 6 times estimated earnings for the fiscal year under way, well below its sector, and long-term contracts cover a large share of its output.
So is the market right to price in a peak? The facts suggest it is pricing a sharper fall in profit than Sandisk’s own contracts and guidance imply, at least for the next year or so.
Sandisk makes NAND flash storage, including solid state drives, memory cards and USB drives. It sells them to data centers, makers of edge devices, and consumers. Revenue reached $8.97 billion in the fiscal fourth quarter, up 51% from the quarter before. If you’re looking for undervalued AI stocks, check out 10 Undervalued AI Stocks to Buy Now.
Higher Prices Drove the Latest Jump
Gross margin hit 84.6% in the fiscal fourth quarter, compared with 26.2% a year earlier, which shows how much pricing mattered. The risk is that so much of that margin came from price rather than volume.
Data centers are the newer piece of the business. Datacenter revenue reached nearly $3 billion in the quarter, more than double the quarter before. CEO David Goeckeler said Sandisk now counts data centers as a key growth pillar, with deeper customer partnerships.
Contracts Now Cover Half of Next Year’s Output
Sandisk has tried to lock in some of those gains. At its investor day, the company said it had signed new business model agreements with eight customers. They cover about half of its output, measured in bits, in fiscal 2027 and about two-thirds in fiscal 2028. Sandisk described them as enforceable contracts with minimum financial guarantees.
That is the best answer to the price-war worry, but not a full one. A contract floor does nothing for prices on the rest of the output, and the investor-day release does not say how high the floors are. Guidance points to slower profit growth. Sandisk expects adjusted earnings of $44.00 to $46.00 a share in the fiscal first quarter, a smaller step up than the last quarter’s jump from $23.41 to $39.25.
Management’s own long-term plan is more modest still. For fiscal 2028 through 2030, it assumes revenue grows in the mid-to-high teens, with gross margin near 80%, below the 84.6% it just reported. In other words, Sandisk is not planning on prices that keep climbing. Investors who want more on stocks the market is wary of can see our ranking of 10 Stocks Investors Are Running Away From.
What the Low Multiple Assumes
The forward price-to-earnings ratio is about 6, based on estimated adjusted earnings for fiscal 2027, against a sector median of about 21. Consensus estimates call for earnings per share to grow about 203% in fiscal 2027, so the stock looks cheap on the year now under way. That gap fits a market treating this year as peak earnings. Sandisk has traded on its own only since February 2025, so there is no five-year average to compare it with. For investors looking to add more chip exposure, our list of 12 Best Performing Semiconductor Stocks to Invest In is worth a look.
Anyone who owns the stock is effectively betting that the contracts and datacenter demand turn out better than the market fears. Sandisk also has $15.5 billion left on its buyback authorization and says it plans to return all excess cash to shareholders after investing in the business.
The market looks to be pricing a peak already, and for the next two years the contracts and guidance don’t point that way. The years after that are where Sandisk’s own plan flattens growth, so they are the harder part to price. The report due at the end of this month will show whether gross margin stays within the guided range of 83.0% to 85.0%. That would be the clearest sign that prices are staying firm.
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This article is originally published at Insider Monkey.
