Down 48% From Its All-Time High, Sandisk Stock Is a Brilliant Buy Right Now

Sandisk (NASDAQ: SNDK) has had an incredible run over the past year. At its peak in late June, the stock was up over 5,438%, but it has given back a lot of those gains since the calendar flipped past June. Now, it's down around 48% from its all-time high.

Many investors are now wondering if Sandisk's stock bubble has burst, warranting the sell-off. On the flip side, this could just be a case of investors taking profits on a huge winner. That would make it a stock potentially worth buying on the dip.

I think Sandisk stock still has a lot of long-term investing merit, and a rally could be coming in the future that will return it to all-time high levels. Let me explain.

Image source: The Motley Fool.

Sandisk is in the middle of a multi-year up cycle

Sandisk makes NAND memory, which is commonly used for long-term data storage. NAND is used in various devices, but the biggest demand for it right now comes from solid-state drives (SSDs), which are used in data centers to store information. There is an unprecedented number of data centers being built right now, and the memory chip industry cannot meet the demand. As a result, there is a supply shortage, causing prices to skyrocket, benefiting producers like Sandisk.

This is why Sandisk's revenue and profit growth have been off the charts recently.

Data by YCharts.

It's likely to continue, as artificial intelligence data center build-outs aren't slowing down, and it takes years to increase production capacity. Additionally, there's no guarantee that once supply increases, prices will come down, as even higher data center demand could emerge by then. This creates a positive flywheel effect for Sandisk and its peers, which is why the stock may be able to regain some of its previously established levels.

Sandisk's dirt cheap valuation will also help its prospects.

Data by YCharts.

Sandisk trades at a low 6 times forward earnings, which is far cheaper than where most companies ever trade. The reason for its low prices is pretty simple: Memory chip stocks are cyclical. If prices crash in the near future, investors don't want to be caught holding a highly valued Sandisk's stock. Seeing is believing in this industry, and until Sandisk actually produces the results, the stock may stay depressed.

I'm confident that memory chip prices will remain elevated in the near term due to high AI demand, which will support Sandisk's stock. If you missed the initial run, now is the perfect time to get in, as this sale price won't last forever.

Keithen Drury 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.