Micron and Sandisk Are Up Big During the Past Year. Can the Run Continue?

If you had the foresight to invest in Micron (NASDAQ: MU) and Sandisk (NASDAQ: SNDK) stock during this time last year, you look like a genius right now. Micron is up about 700%, while Sandisk is up more than 3,800%. Those are monster returns in a short time frame, and would thrill any investor.

But that doesn't matter anymore. What really matters is if these two can continue their run.

Image source: Getty Images.

Micron and Sandisk are thriving from a memory chip shortage

The artificial intelligence (AI) build-out has stretched many supply chains thin. Demand for computing products has never been this high, and there isn't the capacity to fulfill the needs that the AI hyperscalers are creating. Those demands aren't likely to slow down, either. Alphabet told investors that they should expect "significantly" more in data center capital expenditures in 2027, and Nvidia informed investors that next year's hyperscaler spending could top $1 trillion, on the path to $3 trillion to $4 trillion in annual data center spending around the globe by 2030.

Those are major growth projections, and any company involved in the AI build-out is set to experience major growth during the next few years, which bodes well for both Micron and Sandisk. These two companies both make memory chips, of which there are two primary varieties. Micron makes both NAND and DRAM, while Sandisk makes NAND. NAND memory has a higher storage capacity, but is slower than DRAM. In data center applications, it's primarily used in solid-state drives (SSDs) for long-term data storage. DRAM memory usually accompanies computing units like GPUs for quick access to information. Both of these types of memory chips are in high demand, and neither Sandisk nor Micron has the needed production capacity.

With low supply and high demand, the price of the commodity soars, which is why both Micron and Sandisk have seen unbelievable revenue and earnings growth during the past few quarters.

MU Revenue (Quarterly YoY Growth) data by YCharts

Wall Street analysts expect these incredible results to continue. For fiscal year 2027 (ending August 2027), Wall Street expects 63% revenue growth from Micron. Sandisk's projections are even higher, with its FY 2027 (ending June 2027) growth rates projected to come in at about 122%.

With long-term data center demand ahead and no chipmakers able to provide adequate supply, I'd expect memory chip prices to stay elevated for the next few years, making these stocks intriguing investments. But are they priced right?

Both Micron and Sandisk have room to run

Despite both companies going on an unbelievable run during the past year, their stock valuations haven't gotten out of control because they were cheaply priced to begin with, and each has the growth to justify its current price tag.

MU PE Ratio (Forward 1y) data by YCharts

If you look at next year's earnings (forward one-year price-to-earnings ratio), each stock trades for about 9 times next year's earnings. Compared to each stock's forward P/E now, that could mean each stock can double as 2027's results are realized. Although that's not the monster returns that each stock put up during the past year, it's still a great return for just one year of buying and holding a stock.

However, these two stocks aren't set-it-and-forget-it investments. Investors will need to keep an eye on memory chip supply and demand, because if supply catches up to demand, prices could fall sharply, and these stocks could get slammed. If you're diligent, there's still a ton of money to be made here. But these two aren't for everyone due to their monitoring requirements.

Keithen Drury has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.