Key Takeaways
- Sandisk fell 12% today despite record results and higher guidance.
- Intel and Amazon also sank after their reports, which raised questions about PC demand and AI spending.
- Sandisk’s gross margin hit 85% on $11 billion of revenue, and about half this fiscal year’s output is under long-term agreements.
- The stock is priced for a downturn, but Sandisk’s long-term contracts carry price floors.
Sandisk (SNDK) beat estimates, guided higher and announced an 8-for-1 stock split after Thursday’s close. The stock is down 12% today anyway, trading at about $1,167.
The drop came alongside steep selloffs in two of Thursday night’s other reporters, and Micron and storage peer Western Digital slid too. Intel (INTC) is down 29% after a weak fourth-quarter outlook it partly pinned on memory shortages, and Amazon (AMZN) is down 7% as AI spending pushed its free cash flow negative.
Another Huge Quarter
- Revenue of $11.0 billion, up 378% from a year ago and above the $10.7 billion expected
- Adjusted EPS of $49.51 (pre-split), up 26% sequentially
- Data center revenue of $4.8 billion, up 61% sequentially
- Second-quarter guidance of $12.2-$12.6 billion in revenue and $55-$57 in adjusted EPS
Going in, the consensus called for $215 a share this fiscal year (to June):
Add the second-quarter midpoint to the first quarter, and the first half comes to about $106, leaving about $110 for the second half to hit $215. Two more quarters at the second-quarter guide would bring the year to about $218, but CFO Luis Visoso told analysts to be conservative on the third quarter, historically Sandisk’s weakest. The $215 is within reach, with little room to spare.
The Worry Is Demand
Intel guided its fourth-quarter adjusted gross margin to 38%, from 44.1% in the third, citing a PC slump that memory shortages are speeding up. That’s the flip side of Sandisk’s pricing power: its own consumer revenue fell 29% from the prior quarter.
Amazon’s free cash flow was a $42.4 billion outflow over the past twelve months, and CEO Andy Jassy said Amazon expects to “spend meaningfully more in 2027.” That’s more demand for Sandisk’s data center drives, which made up 44% of its revenue last quarter.
TIKR Tracks 25 Analysts on Sandisk. How Many Say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Sandisk, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Sandisk’s Analyst Ratings
Priced for a Peak
Sandisk closed Thursday at 5.8x forward earnings, against an 11x average over the past year:
The multiple was already near half its usual level after this month’s DRAM scare, and today’s drop takes it lower. That’s with a gross margin that has climbed from 30% a year ago to 85%:
TipRanks summed up investor Kenio Fontes’s view of the selloff as “absurd.” Fontes upgraded the stock to Buy, though he concedes margins are likely nearer their ceiling than their floor.
On Thursday’s call, Sandisk said long-term agreements cover about half of this fiscal year’s bits and two-thirds of next year’s, and that 95% of them are with investment-grade companies. In August, it put their minimum revenue at $93.9 billion at floor prices, over terms averaging more than four years.
What Sandisk Has to Show Next
At under 6x earnings, the market is pricing in a bust. The contracts don’t rule one out, since a floor price isn’t an 85% margin, but they make the worst version much harder to reach. I’d read today’s drop as a chance to buy, and the fiscal third-quarter guide is the next test.
So What Is Sandisk Stock Actually Worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
