Why Sandisk Stock Just Dropped

Sandisk (NASDAQ: SNDK) stock tumbled 4% through 12:15 p.m. ET Monday, despite closing out last week on a strong note of support. After the close of trading on Friday, investment bank Jefferies more than doubled its price target for the maker of flash computer memory to $3,000 per share and urged investors to buy.

By Monday morning, investors had already forgotten all about that.

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What's worrying Sandisk investors today

Why is that? Perhaps it's because of the headlines that came out between Jefferies' price target hike Friday, and the start of trading Monday: Namely, reports that Apple (NASDAQ: AAPL) is petitioning the U.S. government for permission to skip purchases of overpriced Micron (NASDAQ: MU) and Sandisk memory chips, and buy from Chinese supplier CXMT instead.

This may not seem like an immediate threat to Sandisk. CXMT is primarily a supplier of DRAM -- not NAND flash. Still, if Apple's move becomes a trend -- and it certainly could, as users of memory chips scramble not just to obtain lower prices, but to obtain access to supply from any source available -- then the threat CXMT poses to Micron could see mirror images in threats to Sandisk from Chinese NAND suppliers.

Should you worry?

So the threat is real.

That said, crunching the numbers this morning, Mizuho analyst Jordan Klein argues the threat may also be overblown, because prices are still going up and buyers are still locking in supply of DRAM and NAND from Micron and Sandisk -- even with the potential for access to cheap Chinese chips on the horizon.

With Micron forecasting continued memory supply deficits through 2027 and into 2028, and buyers lining up to sign long-term supply deals, cheap Chinese chips might not arrive fast enough to do Sandisk any harm.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.