- Sandisk stock price soared by over 18% after the Micron earnings.
- Micron’s earnings showed that there is strong demand for memory.
- SNDK is still a bargain, but potential risks remain.
SanDisk stock price continued its strong bull run today and is nearing its all-time high, as investors cheered Micron’s recent earnings. SNDK soared by 18% today, June 25, bringing its year-to-date gains to 835%. It has jumped by 4,670% over the last 12 months, making it a $334 billion giant. So, will the stock continue soaring?
SanDisk Stock Jumped After Micron Earnings
There are signs that memory demand continues to rise this year as the artificial intelligence boom gains steam. These hopes accelerated on Wednesday when Micron published a blemish-free financial report and after SK Hynix made plans to list its business in the United States.
Micron’s report showed that its revenue soared by over 300% in the third quarter, while its gross margin jumped to 85%. It also raised its fourth-quarter revenue guidance to $50 billion, above the $43 billion expected by analysts. As a result, analysts expect that its annual revenue will jump to over $120 billion.
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Micron and Sandisk make different products. It makes high-bandwidth memory (HBM) chips, while Sandisk specializes in making SSDs, memory cards, and other memory products for data centers. These products have become highly popular because of the vast amount of data being generated today.
SanDisk’s business has become highly successful, leading the company to receive multi-year commitments from clients, including some of the biggest companies in the AI industry.
Therefore, Micron’s earnings suggest that SanDisk will also report strong financial results in the coming months. The average estimate is that its revenue in the current quarter will be $8.28 billion, up by 335% YoY. The next quarter’s revenue will be $10.25 billion, up by 343%. As a result, annual revenue is expected to soar to $19.6 billion, then reach $43 billion next year.
Chances are that SanDisk will publish better numbers than these, an impressive feat since it made $7.3 billion for the whole of last year.
SanDisk is Not Expensive But Major Risks Remain
Despite the 4,670% surge in the last 12 months, there are signs that SanDisk stock is not overvalued. For one, it trades at a forward multiple of 29, slightly higher than the sector median of 23. The S&P 500 Index has a multiple of 22, while Western Digital and Seagate have 64 and 66, respectively.
SanDisk also has a forward price-to-earnings-to-growth ratio of 0.09, one of the smallest in the industry. From a growth and valuation perspective, there are signs that SNDK stock has more room to run.
Still, SanDisk’s shares face some major risks ahead. One of these risks is that the memory industry is known for its boom-and-bust cycles, in which supply typically jumps when prices are soaring. As a result, there is a risk that this supply will start to rise in the next one or two years.
The other main risk is its technicals. The daily chart shows that the stock has begun forming a bearish divergence. While the stock is in an uptrend, it has formed a descending channel. This is usually a sign that the rally is losing momentum.
The stock also remains well above the 50- and 100-day moving averages. The 50-day EMA remains at $1,553, much lower than the current price of $2,250, a sign it may undergo mean reversion.
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