1 Stock-Split AI Stock to Buy Before It Soars 328%, According to a Wall Street Analyst

Sandisk (NASDAQ:SNDK) has been one of the biggest beneficiaries of the memory chip supply shortage, both in terms of revenue growth and share price appreciation. The stock has more than tripled this year, following its 559% gain last year.

Yet, most Wall Street analysts think Sandisk is undervalued. The median target price of $2,100 per share implies about 150% upside from its current share price of $885. Ben Reitzes at Melius Research is particularly bullish. His target price of $3,600 per share implies 328% upside.

Further strengthening the bull case, Sandisk recently announced an 8-for-1 stock split that will take effect on Nov. 19. Splits are arguably indirect indicators of quality businesses because they are only necessary after substantial and sustained price appreciation, which itself rarely happens to bad businesses.

Here's what investors should know.

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History says Sandisk stock will nearly double in the next year

According to research from Bank of America, stock splits tend to precede robust, market-beating returns. From 1980 to 2023, stocks increased by an average of 25.4% during the 12-month period following stock split announcements. Meanwhile, the S&P 500 returned an average of just 11.9% over the same intervals.

What does that imply? Sandisk traded at $1,330 per share when the company announced the 8-for-1 stock split on Oct. 29. So, its share price will increase 25.4% to $1,667 over the next year if its performance matches the historical average. That implies about 98% upside from its current share price of $885.

Interestingly, that figure is actually below Wall Street's median target price of $2,100, which represents a consensus estimate from 34 analysts and implies 150% upside. Of course, how Sandisk performs in the next year depends on several factors, especially financial fundamentals and investor sentiment surrounding artificial intelligence and memory chips.

The bull case: Sandisk will continue to benefit as companies invest in artificial intelligence infrastructure

Sandisk is a semiconductor company that develops storage devices based on NAND flash memory. Its product portfolio includes external and embedded flash drives built for mobile devices, wearable devices, and automotive systems, as well as enterprise solid-state drives (SSDs) for enterprise data centers.

Sandisk has been a major beneficiary of the artificial intelligence boom, which has greatly increased demand for memory chips. In fact, NAND prices have increased 160% in the last two years due to relentless demand, and that trend has correlated with strong financial results for Sandisk.

Revenue increased 378% to $11 billion in the first quarter of fiscal 2027, which ended in October. And non-GAAP earnings improved to $49.51 per diluted share, up 40-fold from the same quarter last year. And investors have good reason to think that momentum will last for at least another year or two.

Sandisk has signed long-term supply agreements with at least eight customers, covering about two-thirds of expected NAND flash production in fiscal 2028. The contracts include specific purchase volumes, structured pricing, and financial guarantees that offer revenue visibility. That trend signals strong demand because the memory industry has historically relied on short-term contracts, with terms renegotiated monthly or quarterly.

Additionally, Sandisk will begin sampling a new product called high-bandwidth flash (HBF) next year. HBF is designed to overcome memory capacity constraints that currently limit AI systems by providing a more cost-efficient way to store and access large amounts of data. Indeed, Goldman Sachs analysts estimate HBF could cut inference costs by 30%, creating a market potentially worth $40 billion to $150 billion by 2030.

The bear case: Sandisk lacks a durable competitive edge and competes against companies with much greater market share

Sandisk operates in a cyclical, commoditized industry, meaning NAND prices are largely based on supply and demand rather than product differentiation. The company's strong financial results show definitive pricing power, but that pricing power is the product of a severe supply shortage, not a durable competitive advantage.

In that sense, the situation is a double-edged sword. Every major memory chipmaker is working to increase production capacity, putting the market on course for a future supply glut that would likely cause prices to fall substantially. Indeed, NAND prices dropped 70% during the last industry downturn.

Additionally, Sandisk competes against companies with stronger market positions. Sandisk captured 11% NAND flash market share in the June quarter, matching its market share in the previous year. That puts the company in sixth place behind Samsung (28%), SK Hynix (19%), Micron (15%), Kioxia (14%), and YMTC (14%), per Counterpoint Research.

Sandisk stock looks very cheap, but earnings could decrease sharply in the future

Sandisk trades at 6.7 times earnings, a cheap valuation for a company whose earnings are forecast to increase at 40% annually over the next three years. But earnings will decline, perhaps sharply, when the next downturn hits the memory industry.

If the earnings decrease is modest, Sandisk is undervalued today. But if the decrease is significant and protracted, the stock may be fairly priced or even overvalued. I think patient investors can buy a small position today, provided they are comfortable with volatility. But I would rather own stock in a market leader with a durable competitive edge, and Sandisk does not satisfy those conditions.

Bank of America is an advertising partner of Motley Fool Money. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Micron Technology. The Motley Fool has a disclosure policy.