SanDisk's AI Hype Fuels Record Highs Amid Cyclical Warning Signs

What happened

SanDisk stock has surged to approximately $665, nearing an all-time high, driven by stellar quarterly earnings and robust demand for flash memory from AI applications, as highlighted in recent media coverage. This parabolic rise of 1,746% from its spin-off price reflects intense market enthusiasm for SanDisk as a pure-play beneficiary of the AI memory supercycle. However, DeepValue's analysis reveals that the current valuation embeds multi-year periods of above-cycle earnings, with management guiding for Q3 FY26 revenue of $4.4-4.8 billion and non-GAAP gross margins of 65-67%. Despite this optimism, filings underscore NAND's structural cyclicality, recent underutilization charges, and risks such as oversupply from competitors like YMTC or a slowdown in hyperscaler capex. Consequently, while near-term AI demand supports strong performance, the stock's lofty price leaves limited upside and significant downside if margins revert to historical norms.

Implication

The current price assumes sustained AI-driven demand and tight supply, but any normalization in NAND pricing or a slowdown in hyperscaler capex could compress earnings and valuation multiples sharply. SanDisk's dependence on the Kioxia JV and fixed commitments adds operational risk, while consumer segment weakness remains a headwind. With scenarios pointing to a base case value of $500 and bear case of $330, upside to $800 requires flawless execution and persistent shortages. Therefore, waiting for a lower entry point or reducing exposure is prudent over the next 6-12 months. Monitoring key indicators like gross margin trends and industry price forecasts is essential to avoid capital impairment.

Thesis delta

The news article reinforces DeepValue's cautious thesis by illustrating how market euphoria has driven prices to levels that discount perfection, without introducing new fundamental shifts. This underscores the existing view that SanDisk is overvalued with asymmetric downside risk, and investors should reassess only if conditions change, such as margin compression or demand slowdown. No material shift in the investment thesis is warranted; rather, the current hype amplifies the need for vigilance against cyclical reversion.