After soaring 4,000% in a year: SanDisk stock crashes 50%
Until a month ago, SanDisk investors were seeing annual returns of around 4,000%, but the stock has since halved from its peak. We examine the pressures facing the company and whether this correction presents a buying opportunity.
There are stocks that rise steadily, and there are stocks that simply soar. SanDisk (ticker: SNDK), the memory chip manufacturer, was until recently the perfect example of the latter. At its peak about a month ago, the stock showed a dizzying annual return of approximately 4,000%. An investment of 10,000 shekels turned into nearly half a million. It was one of the sharpest runs in Wall Street history.
However, in recent weeks, the picture has changed. From a peak of nearly 2,300 dollars recorded at the end of June, the stock has plummeted by almost 50% and is now trading around 1,200 dollars. On the last trading day alone, it lost about 12%. The return over the last 12 months still stands at a figure that is hard to grasp — about 2,900% — but anyone who entered near the peak, out of fear of missing the train, is sitting today on a loss of nearly half their investment.
The immediate catalyst came from China. The chip company CXMT issued its shares this week on the Shanghai Stock Exchange and jumped by more than 460% on the first trading day. In one fell swoop, it became the most expensive company in China, with a valuation of nearly 500 billion dollars. The IPO raised about 9 billion dollars and brought an old fear back to life: that Chinese manufacturers would flood the market with cheap memory and hurt the prices and profit margins of existing players.
CXMT specializes in DRAM memory, while SanDisk produces NAND memory — two different markets. In the immediate term, this is not direct competition, and some argue that the sharp reaction in the stock is exaggerated.
However, the market is thinking ahead: if a Chinese company has already broken into the DRAM field, who guarantees that the next Chinese company won't also enter NAND, and then the threat to SanDisk will become very real.
Beyond that, the decline in SanDisk is part of a broad wave of selling across the entire memory sector. Micron, Western Digital, and SK Hynix also fell in parallel. Some investors are identifying a rotation from manufacturers to giants like Apple and cloud providers, and some are simply taking profits after a rise of hundreds of percent. Let us also recall that the memory market is cyclical by nature — prices that are too high eventually lead to an excess of supply and a decline in prices.
The hunger of artificial intelligence models for data has created huge demand for storage chips, while supply has remained limited — and this has translated into pricing power that the industry has not seen in a decade. In the last quarter, the company reported revenues of about 6 billion dollars and exceptional gross profit margins of over 78%. CEO David Geckler called it a "significant turning point."
More importantly, SanDisk has moved to long-term contracts with its major customers, including advance payments and quantity commitments. This move turns it from a cyclical and speculative company into a company with more predictable revenues, and Wall Street priced that difference dearly.
The question being asked now is whether the recent declines are just the beginning, or if there is actually an entry opportunity here before the next run, and opinions are divided.
Optimists point to billions of dollars in signed contracts and growth of hundreds of percent in data center revenues. Investment houses like Morgan Stanley and Mizuho also see the declines as a buying opportunity rather than the beginning of a collapse. Pessimists argue that the rally was simply overstretched, and that demand forecasts might turn out to be too optimistic.
Anyone holding a fund that tracks the Nasdaq index — in a pension, in a training fund, or in a savings fund — is exposed to SanDisk and the entire memory sector without even knowing it. And that is exactly the point: a stock that rose 4,000% and was cut in half is not necessarily a bargain, but rather a reminder of how volatile this market is. Anyone considering entering now should remember that the same volatility that created the profits can also wipe them out just as quickly.
