Why SandiskStock Dropped on Thursday
Key Points
Interest rate worries eased for Sandisk investors today.
Unfortunately, today also saw a new worry from OpenAI about the revenue needed to buy Sandisk chips.
Lynx Equity Strategies remains optimistic and predicts computer memory supply will remain tight through 2028.
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Sandisk (NASDAQ:SNDK) stock tumbled in Thursday trading, closing the day down 4.9%. And why?
Bond yields declined Thursday, and minutes released from the last meeting of the Federal Reserve Open Markets Committee suggest there's little appetite for continued interest rate hikes. Both these developments should be good news for Sandisk if they help lower the cost Sandisk customers pay when financing their purchases of computer memory chips.
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Unfortunately for Sandisk investors, that wasn't all the news that came out Thursday. As CNBC reports, OpenAI just confirmed that its annual recurring revenue as of the end of September was only $50 billion -- not the $68 billion previously posited.
Image source: The Motley Fool.
What that means for Sandisk stock
If OpenAI's not making as much money as investors thought it was, then Sandisk's AI customers might actually need to take on more loans to buy the company's memory chips. Because if they're anything like OpenAI, their revenues may not be generating enough cash to pay for those chips out of cash flow alone!
What's next for Sandisk stock
Should Sandisk shareholders panic now? Not necessarily.
OpenAI fell short of the revenue mark in September, but the company still grew its revenue run rate 77% in the September quarter -- not too shabby. And a new report out of Lynx Equity Strategies lends further support to the theory that memory chip revenue will keep booming for years.
Tight supply of memory chips has driven up the prices Sandisk can charge for its wares, and according to Lynx analyst KC Rajkumar, memory supply in 2027 and 2028 will be "significantly tighter than in fiscal 2026." The longer supply remains tight, the longer Sandisk's profits should keep rising.
Trading at just 8x next year's earnings, Sandisk stock still looks like a buy to me.
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Rich Smith 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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