SanDisk stock has suffered a big reversal, falling by 35% from its recent all-time high. This sell-off intensified today, July 7, as companies in the memory space plunged after the strong Samsung earnings. So, is this a golden opportunity to buy the dip, or should investors sell the rip?
SanDisk Stock Plunged Amid Memory Woes
The ongoing SanDisk stock sell-off is mostly because of what happened in South Korea earlier today. In a statement, Samsung said that its revenue and profits surged in the second quarter as demand for memory and semiconductors jumped.
Instead of soaring, Samsung shares plunged, partly because the strong growth was already priced in. We saw this recently when Micron published strong numbers, with its quarterly revenue hitting $40 billion. After initially rising, the stock pared back those gains.
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Most companies in the memory industry dropped today, with the DRAM ETF falling to $59 from its all-time high of $81. Top names such as Japan’s Kioxia, South Korea’s SK Hynix, and Micron were down over 5% today.
Fundamentally, SanDisk is doing well. The most recent results showed that the company’s revenue jumped to $5.9 billion in the first quarter from $1.69 billion in the same period last year. Its nine-month revenue was $11.2 billion, up from $5.4 billion.
Its estimates are even better, with analysts expecting annual revenue to jump 168% this year to $19.75 billion. This will be followed by $47 billion next year, massive numbers for a company that made $7.7 billion in the whole of last year.
Notably, analysts believe that the ongoing memory boom has more room to run because of the tight supply and elevated demand. If this happens, SanDisk will continue to see strong revenue and profitability growth.
Most importantly, SanDisk is still not highly overvalued, given its strong revenue and profitability growth. It has a forward PE of 26, slightly higher than the sector median of 25.
SNDK Stock Faces Some Major Risks Ahead
After soaring over 4,000% in the last 12 months, SanDisk stock faces major risks ahead. One of them is the potential rotation from fast-growing semiconductor and memory companies to laggards such as software and hyperscalers. Morgan Stanley’s Mike Wilson predicted this situation in a Bloomberg interview.
The other risk is that the memory industry has always been cyclical, as we have seen in the past few years. This means these companies do well for some time, then plunge. A good example is what happened in 2023 when Micron’s revenue tumbled to $15 billion from the previous year’s $30 billion.
Further, technicals suggest the stock is now entering the markdown phase of the Wyckoff Theory. This is where investors start selling their shares to book profits. As a result, it may drop towards the psychological level of $1,000 and then resume the uptrend as investors buy the dip.
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