Why Sandisk Stock Dropped 24% in October

Sandisk (NASDAQ: SNDK) stock lost 24% in October, according to data provided by S&P Global Market Intelligence. Although it reported another quarter of fantastic growth, the market is worried about a slowdown in the memory cycle.

Memory is dominating right now

Sandisk makes many of the products important for all kinds of technology, and it's one of the only makers of the NAND flash memory that's critical for artificial intelligence (AI) inference and reasoning. Product scarcity means that it can charge higher prices, and revenue growth has been through the roof.

In the fiscal 2027 first quarter (ended Oct. 2), revenue increased a whopping 378% year over year, and gross margin widened from 29.8% to 85.1%. Operating income increased from $176 million last year to $8.18 billion this year, and it generated $5.7 billion in adjusted free cash flow.

Image source: Sandisk.

Sandisk makes many different products, but most of its growth is coming from its data center segment, where the AI is happening. Data center revenue increased 1,682% year over year, and the company is allocating more of its resources to meet demand.

Management is aiming to beat the memory cycle by locking in long-term revenue with its new business model (NBM) agreements. Historically, memory works in cycles, with clients procuring large amounts before technology changes and demand dries up. This is the height of the cycle, although management sees a large future market as data centers continue to require large amounts of memory to work.

Sandisk has already signed eight NBMs with partners it's choosing deliberately, and its agreements already stretch past 2030.

It also announced an eight-for-one stock split to occur on Nov. 19, to make the stock more accessible to investors and employees.

Is Sandisk stock worth buying right now?

The market's reaction is pretty harsh for a company growing as fast as Sandisk. Either the fear is very real, or Sandisk is a great bargain. It's still up a stunning 352% year to date, and at the current price, it trades at less than nine times trailing 12-month earnings, which is incredibly cheap.

I think the market is overreacting here. Sandisk has a broad business that meets today's current AI needs, and so far, it's not slowing down. Beyond that, it also works with all kinds of tech partners and has a future beyond data centers. At the current price, Sandisk stock looks undervalued.

Jennifer Saibil 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.