Why Sandisk Stock Skyrocketed 54.6% Last Month But Is Sinking in June

Sandisk (NASDAQ: SNDK) stock surged higher in May's trading. The memory technologies company's share price gained 54.6% across the stretch. Meanwhile, the S&P 500 gained 5.2%, and the Nasdaq Composite rose 8.4%.

On April 30, Sandisk published results for the third quarter of its current fiscal year -- a period that ended April 2. The strong results gave the go ahead for strong bullish momentum in a month that saw very bullish trading for artificial intelligence (AI) chip stocks.

Image source: Getty Images.

Sandisk's fiscal Q3 results were a green flag

Sandisk released its fiscal Q3 report at the end of April, and performance in the period crushed the market's expectations. The company recorded non-GAAP (adjusted) earnings of $23.41 per share on sales of $5.95 billion. For comparison, the average analyst estimate had targeted adjusted earnings of $14.66 on sales of $4.7 billion.

With sales roaring 251% higher year over year and margins looking very strong amid a very favorable demand environment, Sandisk's fiscal Q3 report delivered blockbuster print. The very strong report set the backdrop for the company to receive many price target increases from analysts last month, and the overall trading environment for AI chip stocks was also very favorable. Valuations for semiconductor stocks surged last month, and Sandisk's strong Q3 results and formidable position in the memory tech space helped it attract a lot of bullish interest from traders.

Why Sandisk is losing ground this month

Bullish momentum for the AI trade has been taking a breather early in June. For starters, the market had a negative reaction to Broadcom's quarterly report and forward guidance even though the performance picture and outlook appeared to be pretty strong. Bearish pressures were then intensified by the publication of the May jobs report from the Bureau of Labor Statistics (BLS). Sandisk stock is down 8% in June's trading as of this writing.

The BLS's report showed that the U.S. economy added 172,000 nonfarm payroll positions in May -- far above the 80,000 job additions forecasted by economists. Strong growth for jobs has caused investors to worry that the Federal Reserve is more likely to raise interest rates this year.

The central banking authority is tasked with setting monetary policy that facilitates economic growth, but it's also tasked with ensuring that inflation doesn't run rampant -- and raising interest rates is its primary mechanism for combatting inflationary pressures. If economic activity continues to look relatively strong, the central bank is more likely to prioritize curtailing inflation. Higher rates can be used to tamp down inflation, but they also tend to create a less favorable backdrop for tech stocks like Sandisk.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom. The Motley Fool has a disclosure policy.