Micron Says Memory Supply Will Be Much Tighter in 2028. Sandisk's Contracts Limit How Much It Can Gain.

Sandisk (NASDAQ:SNDK) is still the top-performing stock in the S&P 500 (SNPINDEX:^GSPC) this year. Shares of the flash memory business traded near $1,730 as I write, up about 629% from their $237 close at the end of 2025. Moderna is second, up about 571%.

The lead has been narrowing, though. Sandisk dropped about 23% in the third quarter, from roughly $2,274 on June 30 to around $1,740 on Sept. 30. It was the stock's first quarterly decline since the second quarter of 2025.

Then Micron Technology (NASDAQ:MU) shared what seemed like more good news. In prepared remarks for Micron's Sept. 30 earnings call, CEO Sanjay Mehrotra said the company expects memory and storage supply-demand conditions to be "much tighter" than in 2026, in both 2027 and 2028.

Three months earlier, Micron had pointed to 2028 as the year industry supply would begin to improve gradually.

But Sandisk stock was down less than 1% on Thursday, as of this writing. After Micron's June results, it surged 22% in one day.

I think the muted reaction makes sense. A shortage that lasts longer might hold Sandisk's earnings near today's level for longer. But it doesn't necessarily drive them much higher.

Image source: The Motley Fool.

Flash prices are still rising, just more slowly

NAND flash is the kind of memory that holds data even with the power off -- and it's all Sandisk sells. Micron's NAND revenue hit a record $14.1 billion for its 14-week fiscal fourth quarter, which ended in early September. That was up 526% from a year ago and 42% sequentially. Bit shipments (the amount of storage sold) climbed around 10% sequentially, while prices rose about 30%.

These are still strong price gains. But in fiscal Q3, Micron's NAND prices had surged in the mid-80% range.

Sandisk's own numbers follow the same pattern. Its sequential revenue growth slowed from 97% in its fiscal 2026 third quarter to 51% in the fourth (the three months ended July 3), when revenue hit $8.97 billion, up 372% year over year. For fiscal Q1, management guided for sequential growth of around 15% to 20%. Its non-GAAP (adjusted) gross margin climbed from about 51% in fiscal Q2 to 78% in fiscal Q3 and 85% in fiscal Q4, with a fiscal Q1 guide of 83% to 85%.

This suggests Sandisk's profitability has flattened out near a record high.

Contracts limit what Sandisk can gain

Sandisk has already promised much of its future output to big customers. These multi-year deals, which it calls New Business Model agreements, have prices whose variable part can move only between floors and ceilings. Management expects them to cover over half the bits Sandisk sells in fiscal 2027 and around two-thirds in fiscal 2028.

The floors protect Sandisk if flash prices fall. But the ceilings limit how much it gains if the market tightens further. Management doesn't seem eager to raise margins, either.

"We want to get this kind of boom and bust out of it," CEO David Goeckeler said on Sandisk's fiscal fourth-quarter earnings call in August. On that call, he described a gross margin in the mid-80% range as a fair return.

Sure, a longer shortage still helps. Sandisk said in August that it expects its flash to remain on allocation (rationed among customers) past calendar 2027. Micron now expects the whole NAND industry to stay supply-constrained through 2028, even as industry bit shipments rise in the mid-20% range a year.

This arguably makes Sandisk's current earnings look more durable than they did in June.

Is Sandisk stock a buy after its third-quarter drop?

The third-quarter drop left the stock much cheaper. At around $1,730, it trades for about 8 times earnings, based on analysts' average adjusted estimate for the fiscal year ending next summer.

The S&P 500 trades at about 19 times forward earnings.

In other words, investors seem to be treating Sandisk's current profits as temporary.

If Micron is right, these profits might hold up at least through 2028. But the stock's valuation still depends on what Sandisk earns after the shortage ends, and Micron says it can't yet tell when memory supply and demand will get back into balance.

In the end, I think Sandisk is more reasonably priced at $1,730 than it was at $2,274 in June, and Micron's outlook gives its earnings more time. But its margin has stopped rising, and more of its output now sells under contracts with price ceilings. I'd still want to see how these contracts hold up when flash prices drop before buying the stock.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Moderna. The Motley Fool has a disclosure policy.