Sandisk Just Announced a $14 Billion Stock Buyback Authorization: Warren Buffett Has a Warning Investors Shouldn't Ignore

Sandisk (NASDAQ: SNDK) has been the best-performing stock in the S&P 500 so far in 2026. The memory maker has seen demand for its chips soar as AI infrastructure spending escalates. The resulting shortage has enabled the company and its peers to impose significant price increases and achieve tremendous profitability.

Management now plans to return some more of those profits to shareholders. When it delivered its fiscal fourth-quarter earnings results at the beginning of August, it also announced a $14 billion addition to its share-repurchase authorization. That brings its total remaining authorization to $15.5 billion, which is more than 7% of the company's market cap as of this writing. Buying back shares of a stock gives the remaining shareholders a larger stake in the business's future earnings.

But not all stock buybacks are great for investors over the long run. Warren Buffett has frequently shared a warning regarding share repurchases that Sandisk investors shouldn't ignore.

Retired Berkshire Hathaway CEO Warren Buffett: Image source: The Motley Fool.

What does Buffett say about buybacks?

Warren Buffett loves companies that return cash to shareholders either through dividends or stock repurchases. He has often mentioned the value of share repurchases for existing shareholders throughout the annual letters he wrote to Berkshire Hathaway shareholders during his tenure as CEO.

But Buffett has a big caveat about stock buybacks: "All stock repurchases should be price-dependent. What is sensible at a discount to business-value becomes stupid if done at a premium," he wrote in his 2023 letter to shareholders.

Berkshire Hathaway adopted a new share-repurchase policy in 2018 that allowed Buffett and his vice chairman, Charlie Munger, to buy back as many Berkshire Hathaway shares as they wanted, with only a few limitations. The biggest of those is that they could only buy when the stock was trading below its intrinsic value, as conservatively determined by the two of them. The repurchase authorization remains in effect today, with the intrinsic value determined by CEO Greg Abel and Buffett, who now serves only as chairman of the board.

The year of the repurchase authorization change, Buffett wrote, "Blindly buying an overpriced stock is value-destructive, a fact lost on many promotional or ever-optimistic CEOs." And this is the warning Sandisk investors should heed.

Buying back company stock should only be done when it creates value for remaining shareholders, and that can only happen if the shares are bought at a price below their intrinsic value. Consider a small business worth $3 million with shares equally split among three partners. If one partner wants out, the two remaining partners should pay no more than $1 million total. If split evenly, they'd each receive $500,000 in equity value and pay $500,000 in cash. If they pay more, they receive less equity value than the cash outlay. If they pay less, they actually increase their net worth, receiving more equity value than the cash they paid.

The same thing happens when a corporation makes share repurchases, just on a much larger scale. If management overpays to buy stock from other shareholders, the remaining shareholders are left with less wealth based on the company's intrinsic value.

Does Buffett warning apply to Sandisk?

As mentioned, Sandisk stock has been an exceptional performer this year. The stock is up 535% so far in 2026 as of this writing. But Buffett points out, "American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked."

Of course, Sandisk's stock price has risen for good reason. Net income went from negative $1.6 billion in fiscal 2025 to positive $11.4 billion in 2026. Management expects steady mid-teens percentage revenue and earnings growth with gross margins in the 80% range for the foreseeable future. It also expects the structural demand from the artificial intelligence (AI) build-out and its new long-term customer agreements to reduce the cyclicality inherent to the memory chip market.

But there's still a significant amount of uncertainty. More supply is coming not just from Sandisk but from other memory chipmakers, many of which have temporarily shifted some production to DRAM chips rather than the NAND chips that Sandisk specializes in. As more chip production capacity comes online later this decade, chip prices will drop as supply catches up with and eventually outpaces demand. That cycle will inevitably lead to a decline in net income. That said, the stock currently trades at just 7 times forward earnings expectations. And because Sandisk doesn't have a long track record of trading as an independent company -- it was spun off from Western Digital in February 2025 -- it's hard to know how highly to value the stock relative to peak earnings.

That uncertainty is contributing to significant volatility in the stock. And volatility can create many great opportunities to buy back shares. Whether Sandisk capitalizes on that volatility remains to be seen. Buffett would likely be skeptical. Sandisk's management said it will return 100% of excess cash to shareholders at its investor day a couple of weeks ago. That suggests more indiscriminate buying than careful attention to valuation.

Given the scale of Sandisk's stock buyback plan, it's worth taking a thoughtful look and assessing whether it's value-accretive or value-destructive. If you believe management's assertion that Sandisk's earnings will be less cyclical in the future and the stock deserves a higher valuation, then perhaps it's a smart move by management that will pay off in the long run. If you expect the memory market to remain highly cyclical -- a premise that supports the idea that Sandisk should have a valuation below its current one -- you can benefit as a seller while Sandisk is acting as a massive buyer in the market for its shares.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.