Here's What I Think Is Going on With Sandisk Stock
Key Points
Sandisk's tremendous surge is justified.
However, the company faces several real risks.
The margin of safety associated with investing in Sandisk is much smaller than it was a few months ago.
What's the biggest winner among S&P 500 (SNPINDEX: ^GSPC) members so far this year? It isn't Nvidia (NASDAQ: NVDA) or any of the other so-called "Magnificent Seven" stocks. Instead, it's a stock that has only been trading publicly for less than 15 months -- Sandisk (NASDAQ: SNDK).
Even after a recent pullback, Sandisk's shares have still soared higher than those of any other S&P 500 stock. But what's actually driving the impressive rally? Can the momentum continue, or is a steeper sell-off imminent? Here's what I think is going on with Sandisk stock.
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Sandisk's surge is justified
First things first: Sandisk's tremendous performance isn't a fluke. This isn't a meme stock. I believe that Sandisk's surge is justified.
The numbers back me up. Sandisk's revenue for the third quarter of fiscal 2025 skyrocketed 97% from the previous quarter. That growth came on top of a 31% sequential increase in fiscal Q2. The company expects revenue to rise by another 34% in Q4 at the midpoint of its guidance range.
It's no secret why Sandisk's business is booming. Demand for the NAND memory the company makes is soaring, primarily because it's a critical component of artificial intelligence (AI) infrastructure. Sandisk CEO David Goeckeler accurately stated in the latest quarterly update that his company's NAND products are "recognized as an industry gold standard."
Granted, investor psychology is also at play. When a stock takes off as much as Sandisk has, some investors have FOMO (fear of missing out) and jump on the bandwagon. This creates a loop that further fuels momentum.
However, Sandisk emphatically isn't benefiting from any appreciable short squeeze (at least not yet). Short interest in the stock has risen significantly this year. If a short squeeze were underway, we would have seen the number decline.
The risks are real
While Sandisk's rally is real, so are its risks. I suspect that some investors are downplaying those risks more than they should.
One key risk is that Sandisk's growth prospects are now largely baked into its share price. Wall Street seems to share this opinion. The consensus 12-month price target for the stock is barely above the current price.
Interest rates could be another potential problem. Inflation is rearing its ugly head again, even as employment remains strong. This double whammy could ultimately prompt the Federal Reserve to raise interest rates. If rates rise, enterprise spending could slow -- and affect Sandisk's growth.
Sandisk also remains a cyclical stock. Memory market upcycles eventually give way to downcycles. AI hasn't ended this cyclicality. Sooner or later, supply will catch up to and surpass demand. When it happens (if not before), Sandisk's momentum will evaporate.
My take on Sandisk
What do I think is going on with Sandisk? Perhaps most importantly, I see the company as a bona fide transformation story. The Sandisk of 2026 isn't the same as the Sandisk before it was gobbled up by Western Digital (NASDAQ: WDC) in 2016.
I also view the AI boom as a game changer for the NAND market. Sandisk is deservedly the biggest winner from this major shift. It rightfully deserves to be called an AI stock now.
What especially stands out to me is that Sandisk is signing multi-year supply agreements -- three in Q3 and two more in Q4 as of April 30, 2026. This underscores just how much AI has changed the dynamics of the NAND market.
But (you probably knew a "but" was coming), the margin of safety associated with buying Sandisk stock is much smaller than it was a few months ago. I don't think current shareholders should run for the hills because I don't think the current memory upcycle will end anytime soon. However, waiting for a larger pullback before buying additional shares or initiating a new position is the smartest strategy, in my opinion.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Western Digital. The Motley Fool has a disclosure policy.
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