The Newest AI Stock in the Nasdaq-100 Is Up 2,700% in the Past Year. It Could Still Soar 182%, Says a Wall Street Analyst.

Sandisk (NASDAQ: SNDK) will join the Nasdaq-100 on April 20. The stock, which was spun off from Western Digital in early 2025, has advanced more than 2,700% over the past year due to strong demand for its data center storage solutions.

In general, Wall Street says the stock is overvalued. Among the 25 analysts that cover the company, Sandisk has a median target price of $843 per share. That implies 8% downside from its current share price of $921.

However, some analysts think the stock has room to run. In April, Amit Daryanani at Evercore outlined a "bull case" scenario where the stock hits $2,600 per share, implying 182% upside from its current share price.

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Stocks tend to perform well after joining the Nasdaq-100

The Nasdaq-100 tracks the performance of the 100 largest non-financial companies listed on the Nasdaq Stock Exchange. Financial companies are excluded to ensure the index is focused on growth-oriented market sectors, especially the information technology sector.

The Nasdaq-100 is rebalanced quarterly, which shifts weight toward outperforming stocks. The index is also reconstituted annually in December, which removes any underperforming stocks that no longer rank among the top 100 eligible securities.

However, the Nasdaq-100 can be updated during the year if a stock becomes ineligible for any reason. In this case, Atlassian failed to maintain the required minimum weight of 0.1% for two consecutive months, so Sandisk has been selected as the replacement.

In the last decade, 87 stocks were added to the Nasdaq-100, and they returned an average of 18% over the next 12 months. Stocks generally perform well following their inclusion in the index because any funds that track the Nasdaq-100 must buy shares.

However, there are plenty of exceptions to that pattern. During the last decade, Datadog, Enphase, Lucid Group, Peloton, Strategy, and Zscaler all fell more than 50% over the 12-month period after inclusion in the Nasdaq-100. How Sandisk performs in the next year depends primarily on financial results and market sentiment.

Sandisk is growing rapidly amid a memory chip supply shortage

Sandisk develops data storage devices based on NAND flash memory, including enterprise solid-state drives (SSDs). Hard disk drives are cheaper, but SSDs are faster, more power efficient, and more resilient, which makes them ideal for storing datasets needed to train artificial intelligence (AI) models and for storing the models themselves until they are loaded into GPU memory.

Sandisk is not the largest supplier of NAND flash memory products. In fact, the company is currently tied for fourth place with Micron Technology. However, Sandisk gained 2 percentage points of market share over the past year, while industry leader Samsung lost share and Micron's share remained flat, according to Counterpoint Research.

AI data centers require significantly more NAND flash storage than traditional data centers, and demand currently outstrips supply by an unprecedented margin, which has led to substantial price increases. Amit Daryanani at Evercore believes the supply shortage will last through 2028, if not longer, but suppliers are racing to increase production capacity.

So what? Sandisk is currently growing at a phenomenal pace. In the January quarter, sales jumped 61% to $3 billion, and non-GAAP (adjusted) earnings soared 404% to $6.20 per diluted share. But the cyclical nature of the memory chip industry suggests the current supply shortage will eventually become a supply glut, at which point NAND prices will likely fall, perhaps substantially.

Wall Street estimates Sandisk's earnings will increase at 73% annually through fiscal 2029 (ends in June), which makes the current valuation of 125 times earnings look reasonable. But the market will almost certainly afford Sandisk a lower multiple once it becomes clear the memory chip cycle has peaked. The question is, Where will the multiple land?

No one can answer that question, or say precisely how long the current supply shortage will last. That makes Sandisk a risky investment. And with the stock up 2,700% in the past year, investors may want to stay on the sidelines for now.

Trevor Jennewine has positions in Zscaler. The Motley Fool has positions in and recommends Atlassian, Datadog, Evercore, Micron Technology, Peloton Interactive, Western Digital, and Zscaler. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.