There's a Growth Stock Trading at Value Prices
Key Points
SanDisk stock has surged over sixfold since going public earlier this year, but it's undervalued relative to other AI chip stocks.
This valuation discrepancy largely has to do with expectations of how long favorable demand trends for the memory chip company will last.
There may be potential for SanDisk to add to its gains, as signs emerge that these trends will last throughout 2026 and perhaps into 2027.
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Last February, SanDisk (NASDAQ: SNDK) completed its spinoff from Western Digital (NASDAQ: WDC), debuting at a price of $35.06 per share. In less than a year, the memory chip company's share price has surged by nearly 560%, to around $230 per share.
Even after this big rally, shares appear undervalued, relative to expected growth in the coming year. The market may be skeptical that the favorable growth tailwind behind SanDisk's strong performance will last for much longer, but there are indications to the contrary. If this happens, shares could not only hold on to this year's gains but add to them in the quarters ahead.
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Why SanDisk went "to the moon" in 2025
During the first few months following the spinoff, SanDisk experienced mixed price performance. However, this changed during the late summer. That's when the market caught on to how AI-related demand for NAND flash memory chips was quickly outstripping supply.
Image source: Getty Images.
NAND memory providers, such as SanDisk, were able to quickly raise prices. Anticipating dramatic improvements in profitability, the stock soared from the mid-$40s to as much as $284.76 per share between August and November. Over the past month, investor enthusiasm has cooled in anticipation of a demand slowdown starting in 2026. However, what if this trend persists rather than dissipates next year?
There's still more room for another rally
Due to the high uncertainty, SanDisk trades for just 16 times forward earnings. As AI chip stocks like Nvidia and Advanced Micro Devices trade at a forward P/E ratios in the 20 to 30 range, SanDisk appears to be a value stock by comparison.
However, as BNP Paribas analyst Karl Ackerman recently argued, the current "historic DRAM and NAND upcycle ... could span 2026," as supplies remain tight. If further signs emerge that this upcycle will last into 2027, SanDisk's valuation could become far less discounted. Even if this results in only moderate valuation expansion, a surge back to its 52-week high, or even to prices above $300 per share, may be within the realm of possibility.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
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