Why Sandisk Stock Soared Today
Key Points
Sandisk rival Micron beat on earnings and quadrupled its sales in Q3.
Both Micron and Sandisk are locking in high profit margins with long-term supply contracts.
Computer memory specialist Sandisk (NASDAQ: SNDK) stock surged 11.2% Thursday morning after archrival Micron (NASDAQ: MU) crushed analyst forecasts for its fiscal Q3 earnings.
Wall Street had expected Micron to earn $20.78 per share, adjusted for one-time items, on $35.8 billion in quarterly sales. Micron actually earned $25.11 per share, and its sales quadrupled year over year to $41.5 billion.
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When does Sandisk report earnings?
Sandisk itself doesn't report earnings again for another couple of months, on Aug. 24. When it does, though, analysts are expecting big things, with earnings forecast to more than double sequentially to $33.72 per share. And here's the thing:
Sandisk's archrival just reported GAAP profits up 104% sequentially. Investors probably think that if Micron could do that in June, then with computer memory prices still rising, Sandisk can definitely do it, given two more months to work with!
What's next for Sandisk
I suspect the investors buying Sandisk stock on Micron's good news today are right in thinking this way, too.
In comments on its earnings, Micron CEO Sanjay Mehrotra confirmed that the artificial intelligence revolution is alive and well. Micron's "investing at record levels" to help meet customer demand, yet still able to command operating margins in excess of 80% on its products. What's more, as far out as he looks, and no matter how fast Micron builds capacity, Mehrotra still doesn't see supply catching up with demand anytime soon.
For that matter, even if supply does eventually meet demand, it may not make much difference for profits at Micron (or Sandisk), because Micron is locking in long-term prices at these high margins through Strategic Customer Agreements -- and so is Sandisk.
Long story short, the boom times for Sandisk aren't ending anytime soon, either.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
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