SK Hynix Has a Massive Warning for Sandisk Stock Investors
Key Points
Sandisk has been benefiting from the supply shortage in the NAND flash market.
SK Hynix plans to address the shortage by bringing additional capacity online.
Sandisk's momentum, however, is unlikely to be dented by capacity additions, given the massive AI-fueled demand for NAND flash.
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Sandisk (NASDAQ: SNDK) stock has made investors significantly richer over the past year, delivering stunning gains of more than 3,660% as of this writing. The stock's phenomenal jump can be justified by the incredible increase in its revenue and earnings, fueled by the artificial intelligence (AI)-driven demand for storage chips.
The demand for the NAND flash chips that Sandisk sells has significantly outpaced supply. The supply shortage has resulted in a significant jump in NAND flash prices, powering Sandisk's growth in the process. However, a recent announcement by memory giant SK Hynix may dent the very catalyst that's fueling Sandisk growth.
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SK Hynix plans to significantly increase NAND flash production
According to a recent report, SK Hynix is reportedly going to invest $51 billion to build a new NAND flash production facility in South Korea by 2029. The company intends to address the ongoing NAND flash supply shortage, which has been exacerbated by the rapidly rising demand for storage in AI data centers.
This seems like a red flag for Sandisk stock at first. After all, SK Hynix controls 18% of the global NAND flash market, according to Counterpoint Research. Sandisk, for comparison, has a 13% market share. Moreover, SK Hynix also sells dynamic random-access memory (DRAM), which explains why it has deeper pockets than Sandisk.
The South Korean semiconductor giant reported $35.5 billion in Q1 revenue. Sandisk, for comparison, has just over $13 billion in trailing-twelve-month revenue. So, SK Hynix is in a stronger position to move the needle in the NAND flash market, and the massive outlay that it is planning over the next three years could substantially increase supply.
Ideally, this should indeed be a cause for concern for Sandisk investors. However, a closer look at the dynamics of the NAND flash space suggests otherwise.
The additional supply is unlikely to dent Sandisk's momentum
The storage requirements of AI data centers are so strong that the market is expected to remain undersupplied through 2028. In fact, SK Hynix itself estimates that the shortage of memory chips could persist through the end of the decade despite the addition of new capacity. So, the price increases powering Sandisk's outstanding growth are unlikely to go away any time soon.
Data by YCharts
According to Silicon Motion, a company that supplies NAND flash controllers, estimates that the shortage could get worse next year. That's the reason why market research firm TrendForce is now anticipating NAND flash industry revenue to increase to $379 billion in 2027, up significantly from the earlier estimate of $176 billion.
For comparison, the overall NAND flash revenue is anticipated to increase to $271 billion this year, up from $71.1 billion in 2025. So, the memory boom powering Sandisk's growth isn't going to disappear despite new capacity additions.
As such, investors looking to buy this AI stock can consider doing so even after its astronomical surge over the past year, especially given that it trades at an attractive 27 times forward earnings.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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