Why Sandisk Stock Popped Today

Key Points

• Morgan Stanley raised its price target on computer memory-maker Sandisk today.

• The analyst sees demand for computer memory accelerating as artificial intelligence (AI) companies shift into inference mode.

• 10 stocks we like better than Sandisk ›

Investment bank Morgan Stanley raised its price target on computer memory-maker Sandisk (NASDAQ: SNDK) stock to $96 Thursday morning, with an overweight (i.e., buy) rating.

Sandisk stock soared 13.6% through 11:30 a.m. ET Thursday in response.

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What Morgan Stanley says about Sandisk stock

In a note covered on The Fly today, Morgan Stanley called Sandisk its "top pick" in the semiconductor space, citing its belief that makers of NAND flash memory like Sandisk have been left out of investors' "heated" race to buy up artificial intelligence (AI) stocks over the past couple of years.

Demand for NAND is growing, though, argues Morgan Stanley, as the AI landscape shifts from an emphasis on building AI large language models toward using them to answer user questions, called AI inference. High-speed, high-capacity storage such as the flash memory that Sandisk makes is essential for such tasks, argues the analyst -- and that means Sandisk's business is starting to boom.

MS estimates that by 2029, 34% of the global NAND production will go to AI purposes, adding $29 billion worth of NAND sales globally.

Is Sandisk stock a buy?

Investors had better hope Morgan Stanley is right about that, because as things stand today, Sandisk is a bit of a basket case. The company hasn't earned a profit since 2022, and it's racked up $1.6 billion in losses over the last 12 months.

Free cash flow, too, is negative -- although the situation there is improving, with positive operating cash flow, turned into negative free cash flow only by high capital spending. The good news is that, with earnings expected to turn positive this fiscal year, Sandisk may cost only about 21x current year earnings.

If growth is going to be as good as Morgan Stanley expects, Sandisk stock could be a buy.

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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.