Why Sandisk Stock Keeps Falling?

Sandisk (NASDAQ: SNDK) stock has hit a rough patch lately, with shares of the fast-growing memory specialist down by 45% from the 52-week high it reached on June 22.

Investors would have expected this semiconductor stock to step on the gas once again following the release of its fiscal 2026 fourth-quarter results (for the three months ended July 3) on Aug. 5. However, that wasn't the case as Sandisk stock fell almost 7% the following day. The surprising thing to note here is that Sandisk remains under pressure despite its phenomenal growth rate.

Let's see why that's the case, and check if Sandisk's recent weakness is a buying opportunity for savvy investors.

Image source: The Motley Fool.

Sandisk stock is suffering from negative investor perception

Sandisk's recent slide has nothing to do with the company's financial performance. Instead, investors have been booking profits in this memory specialist owing to the rotation out of this sector. The Roundhill Memory ETF, for instance, is down by 19% over the past month.

Concerns about the cyclical nature of the memory industry, which has been prone to oversupply in the past, along with worries about increasing competition from Chinese memory manufacturers, and the sustainability of the heavy spending on artificial intelligence (AI) infrastructure have weakened investor confidence in Sandisk stock.

Additionally, analysts' lofty expectations have created more pressure on Sandisk. Though the company delivered phenomenal revenue and earnings growth last quarter, its outlook missed expectations. That didn't sit well with investors, who seem to be missing the bigger picture.

After all, Sandisk reported a 175% year-over-year increase in revenue in fiscal 2026 to $20.2 billion, while its adjusted earnings per share jumped by nearly 24x to $70.88. What's more, Sandisk's guidance of $10.3 billion to $10.8 billion in revenue for the current quarter points to another year of solid growth.

The midpoint of its revenue guidance indicates that its top line is on track to increase by 4.5x year over year. Also, Sandisk expects non-GAAP earnings per share of $45.00 in the current quarter, which would be a massive jump over the prior year period's reading of $1.22. Sandisk's guidance clearly suggests that its recent sell-off isn't justified, especially considering that its long-term revenue pipeline has increased considerably.

Sandisk reported that it has signed multi-year supply agreements with eight data center customers. Management added on the conference call that these long-term agreements will account for more than half of its NAND flash bit shipments in fiscal 2027. The company estimates that the multi-year agreements will account for two-thirds of its bit shipments in fiscal 2028.

Importantly, these long-term agreements will guarantee phenomenal growth for Sandisk. That's because the company expects at least $94 billion in revenue from these agreements based on floor pricing, a number that could jump higher if the impressive NAND flash price growth continues. So, the minimum-price agreements that Sandisk has in place with customers over the next four to five years should guarantee healthy revenue growth for the company and potentially protect it from downward price swings.

Wall Street expects a big jump in Sandisk stock

It is evident by now that Sandisk is on track to clock a big jump in its revenue and earnings in fiscal 2027. Analysts expect its revenue to jump by 141% to almost $49 billion, while earnings are expected to triple to $213.23 per share.

This phenomenal increase in Sandisk's top and bottom lines explains why this AI stock carries a 12-month median price target of $2,150, representing potential upside of 69% from current levels. However, Sandisk could exceed those expectations, as it deserves to trade at a significant premium to its forward earnings multiple of 19. The S&P 500 index has a forward price-to-earnings ratio of 21.3, but it is expected to clock average earnings growth of 30% this year.

Sandisk's earnings are poised to grow at a significantly faster pace than the S&P 500's in the current fiscal year, which is why I think it should be trading at a premium to the index. However, even if Sandisk trades at 21.3 times earnings after a year, in line with the S&P 500 index, its stock price could jump to $4,542 in a year (assuming it can indeed achieve $213.23 in earnings per share this year).

That's a potential jump of 3.5x from current levels, indicating that Sandisk's recent slide is an opportunity for investors to buy a growth stock on the cheap, and doing so could be a smart thing to do right now, considering the potential upside on offer over the coming year.

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.