(Jan 31): Digital storage company Sandisk Corp’s strong revenue and earnings outlook is extending its blistering rally as the top performing stock in the S&P 500 Index.
Shares of Sandisk surged as much as 25% in early trading on Friday before paring some of those gains after the company said it sees adjusted earnings per share between US$12 and US$14 in the third quarter. Wall Street had expected US$4.95 a share, spurring several analysts to raise their ratings and price targets for the stock, which is up roughly 160% to start the year and around 1,600% since it went public last February.
The upside is being “driven by the demand and pricing implications of an unprecedented datacenter/AI cycle,” Raymond James analyst Melissa Fairbanks wrote in a note to clients, upgrading Sandisk to outperform from market perform with a US$725 price target. The stock is currently trading for more than US$600.
The gains come as investors shift their bets from the biggest technology companies that are pledging billions of dollars in capital expenditures to build out artificial intelligence (AI)technology to the beneficiaries of that spending. The group includes memory storage makers as well as other stocks associated with AI infrastructure.
‘Defining moment’
Sandisk’s earnings guidance was “a defining moment,” Susquehanna analysts led by Mehdi Hosseini wrote in a note to clients, boosting their price target to a Street-high US$1,000 from US$300. “These unprecedented improvements follow the ‘nuclear winter’ of 2022-2023, but it’s the velocity of the recovery that stands out.”.
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The company is benefiting from high demand for NAND flash memory products, according to Bank of America analysts led by Wamsi Mohan, who raised their price target to US$850 from US$390 and reiterated a buy rating.
Of course, the blistering rally adds downside risk to Sandisk shares. And the results didn’t lift all memory storage stocks. Western Digital Corp also reported quarterly earnings that beat Wall Street expectations and raised its guidance for revenue and adjusted earnings per share, but the stock fell as much as 7.3% on Friday. Shares of Micron Technology, Inc were up as much as 4.5% before paring gains, while Seagate Technology Holdings plc rose more than 1% before reversing direction and tumbling 4%.
Still, analysts see the growth trend continuing after adjusted earnings per share for this quarter were 10 times what Sandisk reported a year ago. The consensus estimates for Sandisk’s 2026 net earnings have spiked nearly 11% over the past week and revenue expectations are up 20%, according to data compiled by Bloomberg.
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Those revisions have made the stock appear even cheaper from a valuation standpoint. Sandisk shares trade at about 15 times estimated earnings, down from a peak of roughly 23 earlier this month. That’s a discount to the S&P 500 and Nasdaq 100 Index, as well as other AI plays like Nvidia Corp, which has a multiple of around 25 times.
Memory and storage companies have historically traded at lower valuations due to their cyclical nature, with demand for memory-related products — and the prices for those components — tied to the computers and mobile phones. However, AI spending is seen as so big and durable that investors are tossing the playbook out the window.
“We believe if anything, our estimates likely still underestimate the magnitude [length and ultimate peak] of the current upcycle, leaving room for our numbers [and ultimately Sandisk’s stock] to move higher,” Wedbush analyst Matt Bryson wrote in a note, boosting his price target to US$740 from US$600 and affirming an outperform rating.
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