Sandisk's November Rally Driven by NAND Bull Market, But Structural Risks Linger

What happened

Sandisk's stock rallied in November 2025, diverging from AI-related stocks that sold off, as NAND flash storage prices entered their first bull market in years. This price surge reflects a cyclical uptick in demand, but Sandisk remains a leveraged, loss-making pure-play NAND producer with a history of impairments and oversupply risks. The company's recent Q4 2025 profitability, with net income of $112 million and strong operating cash flow, offers a glimmer of hope but follows years of net losses and a $1.8 billion goodwill impairment in 2025. Despite improved pricing, Sandisk's sub-scale position relative to larger competitors like Samsung and SK hynix, coupled with its dependence on Kioxia JV fabs, exposes it to volatile cycles and competitive pressures. Investors should view this rally with skepticism, as the underlying fundamentals—including a rich valuation at ~3.1x book value and negative modeled intrinsic value—do not yet support a sustainable turnaround.

Implication

The NAND bull market provides near-term relief, but Sandisk's leverage, cyclical nature, and scale disadvantages mean that price gains may not translate into lasting profitability or cash flow stability. With a market cap of ~$29 billion and a price-to-book ratio over 3x, the equity is priced for a robust recovery, ignoring the industry's chronic oversupply and Sandisk's history of losses and impairments. Sandisk's heavy reliance on the Kioxia JV for manufacturing adds operational risk, while its exposure to commoditized client and consumer segments leaves it vulnerable to demand swings. For long-term investors, a shift to a more constructive stance would require evidence of sustained positive free cash flow and margin expansion across multiple quarters, which has not yet been demonstrated. Until then, the rally should be seen as a high-beta, speculative move in a volatile sector, warranting a defensive approach to avoid potential downside from future price declines or execution missteps.

Thesis delta

The news of Sandisk's rally and NAND bull market does not shift the 'POSSIBLE SELL' thesis from the DeepValue report. While short-term pricing improvements are positive, the core risks—cyclicality, leverage, sub-scale positioning, and negative cumulative FCF—remain unchanged. A thesis upgrade would depend on sustained profitability and debt reduction beyond current levels, which the rally alone does not guarantee.