Why Sandisk Stock Jumped 34% in June
Key Points
Sandisk has been one of the biggest beneficiaries of the memory shortage.
As of July 7, the stock has given up all of its June gains.
Profits in the memory sector are soaring, but investors have concerns about their durability.
- 10 stocks we like better than Sandisk ›
Sandisk (NASDAQ: SNDK) has been one of the big winners on the stock market over the last year as the maker of flash memory storage products, including USB flash drives and solid-state drives, has seen profits soar due to the memory shortage.
In June, the stock jumped again, rising 34% according to data from S&P Global Market Intelligence, as the company benefited from a strong earnings report from Micron, an industry bellwether, which said that the shortage in the memory sector would last through 2027, which favors continued bumper profits for Sandisk and Micron.
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What happened with Sandisk
There wasn't much company-specific news out on Sandisk last month, though the stock has become highly volatile, swinging wildly day-to-day as sentiment shifts and analysts update their models.
The biggest data point we got in June seemed to come from Micron, which easily beat estimates on the top and bottom lines, and posted guidance that was ahead of expectations as well.
Micron's results show how severe the memory shortage has gotten, as its margins soared, as it reported 85% gross margin in its fiscal third quarter and a whopping 80% operating margin. Those kinds of profits won't be sustainable over the long term, but Sandisk could be next up to get a boost from an earnings blowout after Micron's report.
Sandisk also received some favorable analyst commentary as Bank of America raised its price target to $2,100 from $1,550 after lifting its estimates on Sandisk due to strong trends in the sector. For 2027, it expects $44 billion in revenue and $188 in earnings per share, meaning the stock is currently trading at less than 10 times forward earnings.
What's next for Sandisk
Sandisk's gains in June were short-lived as the stock has fallen 31% through July 7 as the market seems to be doubting the strength of the memory trade following reports that Meta Platforms would start its cloud computing service, which some see his evidence that it overspent on its own AI infrastructure.
Additionally, memory stocks fell after Samsung, one of the three large memory chip companies along with Micron and SK Hynix, reported strong earnings, but still declined due to concerns about overspending on AI and future demand for memory chips, which have historically been highly cyclical.
Sandisk is likely to deliver several more quarters of blowout results, but market sentiment is what's driving the stock at this point. Investors should buckle up.
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Jeremy Bowman 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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