Sandisk Stock Is Up 1,560% in the Past Year -- but This AI Storage Stock Is a Better Buy, According to Wall Street

Sandisk (NASDAQ: SNDK) shares have advanced 1,560% in the past year as memory chip supply shortages have pushed prices higher. Meanwhile, Pure Storage (NYSE: PSTG) shares have traded sideways. But Wall Street sees Pure Storage as the better buy right now.

• Among 24 analysts, Sandisk has a median target price of $717.50 per share. That implies 20% upside from its current share price of $598.
• Among 23 analysts, Pure Storage has a median target price of $100 per share. That implies 40% upside from its current share price of $71.

Here's what investors should know about these artificial intelligence (AI) storage stocks.

Image source: Getty Images.

Sandisk

Sandisk is a semiconductor company that develops NAND flash memory chips and storage solutions for data centers and edge devices such as personal computers. Core to its business is a partnership with Japanese manufacturer Kioxia. The companies realize cost efficiencies by sharing research and development (R&D) expenses and capital expenditures (capex) related to NAND memory development and wafer fabrication.

Sandisk has another important advantage in vertical integration. Beyond manufacturing flash memory wafers, the company packages wafers into chips and assembles chips into final products, like enterprise solid-state drives (SSDs). That lets Sandisk optimize performance and reliability to a greater degree than suppliers less focused on final products, like Micron Technology.

Compared to hard disk drives (HDDs), SSDs built on NAND flash technology are more expensive, but they are also faster and more durable, which makes them the better choice for artificial intelligence (AI) workloads. Consequently, Nvidia CEO Jensen Huang believes NAND flash memory "will likely be the biggest storage market in the world."

Sandisk is the fifth-largest supplier of NAND flash memory, behind Samsung, SK Hynix, Micron, and Kioxia. But Sandisk gained about 2 percentage points of market share in the past year, outpacing the other four companies. That trend may continue in the future because several hyperscalers are evaluating its enterprise SSDs.

Sandisk reported non-GAAP (generally accepted accounting principles) earnings growth of 404% in the last quarter, and Wall Street expects adjusted earnings to increase at 410% annually through the fiscal year ending in June 2027. That makes the current valuation of 81 times earnings look cheap.

Pure Storage

Pure Storage develops all-flash storage platforms comprising proprietary hardware built on 3D NAND (DirectFlash modules), management software, and subscription services. Compared to traditional SSDs, DirectFlash modules offer 2 to 3 times better storage density and consume about half as much power, making them ideal for AI workloads.

Pure Storage has another distinguishing trait in Evergreen architecture, which allows for continuous and nondisruptive hardware and software upgrades. The company monetizes that technology with subscription services that let customers unify file, block, and object storage across public clouds and private data centers.

Consultancy Gartner recently ranked Pure Storage as the technology leader in enterprise storage platforms, praising its unified data management, operational efficiency, and high customer satisfaction. Meta Platforms selected Pure Storage as a supplier last year, and the company also serves 63% of Fortune 500 companies.

Pure Storage reported non-GAAP earnings growth of 16% in the last quarter, and Wall Street expects adjusted earnings to increase at 23% annually through the fiscal year ending in February 2027. That makes the current valuation of 40 times earnings look reasonable, especially when the consensus estimate accounts for the increased R&D spending Pure Storage outlined in December.

Both stocks look attractive, but Pure Storage is less exposed to cyclical demand

To summarize, Sandisk supplies NAND flash memory and storage devices, but its products are more easily commoditized. While Sandisk has generated better returns than Pure Storage in the past year, rising prices related to the ongoing (and unprecedented) memory chip supply shortage have factored heavily in the stock's performance.

Indeed, other memory chip stocks have also posted big returns. Micron shares have more than quadrupled. So, Sandisk's performance has (arguably) been less about a company-specific competitive moat and more about price increases caused by supply shortages. To that end, memory chip stocks may fall as a group when supply begins to outpace demand.

Comparatively, Pure Storage buys NAND flash chips from suppliers and builds integrated enterprise storage platforms comprising proprietary hardware, software, and services. Unlike Sandisk, its business generates recurring revenue, and its products are less easily commoditized. Pure Storage is less directly exposed to the cyclical nature of the memory chip industry.

Personally, I think both stocks are attractive, but I'd buy shares of Pure Storage before buying Sandisk.

Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Micron Technology, Nvidia, and Pure Storage. The Motley Fool has a disclosure policy.