SanDisk's Crowded AI Trade Faces Reality Check as Q2 Earnings Loom

What happened

SanDisk's stock has surged over 1000% since its 2025 spin-off, driven by AI hype and retail flows into meme-stock ETFs, creating a crowded and frothy market position. A Seeking Alpha article highlights the company's recent earnings beats and draws parallels to Nvidia's 2023 rally, pointing to Q3 FY26 guidance as a critical test for revenue and EPS expectations. However, DeepValue's master report reveals that SanDisk's datacenter revenue remains just 12% of the business and declined 10% year-over-year in the latest quarter, with gross margins falling despite revenue growth due to pricing pressure and cost issues. The report rates SanDisk a STRONG SELL, arguing that the current $419 share price prices in sustained 40%+ gross margins and rapid AI mix-shift, which filings show are not supported by the cyclical, client/consumer-focused financials. Market sentiment indicates early stress signals, such as rising short interest and analyst discomfort, amplifying risks if upcoming earnings disappoint or the NAND pricing cycle reverses.

Implication

If SanDisk's Q2 guidance meets or exceeds Street expectations for revenue and EPS, it may briefly sustain bullish sentiment, but investors should remain skeptical due to the stock's extreme valuation and reliance on unsustainable NAND pricing. A miss or conservative guide could catalyze a rapid sell-off, as the market's AI narrative hinges on continued margin expansion and datacenter growth that filings do not yet support. The DeepValue report underscores that SanDisk's high fixed obligations and cyclical exposure make it vulnerable to NAND oversupply, which could compress margins back to historical lows and erase recent gains. For long-term holders, the stock only makes sense if datacenter revenue reaches 20%+ and gross margins sustain above 38%, milestones that require years of execution and face intense competition. Thus, cautious investors should consider trimming positions or awaiting a significant pullback, as the current risk-reward is skewed toward downside in the 6-18 month window.

Thesis delta

The Seeking Alpha article reinforces the bullish narrative around SanDisk's earnings momentum and NAND upcycle, but DeepValue's analysis counters this by highlighting fundamental weaknesses like declining datacenter revenue and margin pressures. This new article does not shift the bearish thesis; instead, it emphasizes the crowded sentiment that DeepValue already flags, increasing conviction that any earnings disappointment could unravel the stock's premium valuation quickly.