Key Points
Sandisk's sell-off has continued, with the NAND memory maker's stock falling over 13% following its latest quarterly earnings release.
While results beat expectations, investors may have expected an even greater beat; many aspects of the earnings release have also underscored concerns about a slowdown in the AI data center build-out.
Although it may look cheap at 5 times forward earnings, remember that cyclical names like Sandisk usually trade at lower multiples during their boom phases.
Shares of NAND memory chip company Sandisk (NASDAQ: SNDK) are up nearly 385% since January, but since July, they have tumbled by more than 43%.
For the latest double-digit percentage drop in the aftermath of earnings, blame disappointment in both the magnitude of Sandisk's earnings beat and concerns about a further growth slowdown.
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Why Sandisk tanked after earnings
For its fiscal 2027 first quarter, which ended Oct. 2, Sandisk reported around $11 billion in revenue, up 23% quarter over quarter, and up 378% year over year. Earnings came in at $52.60 per share, up 20% quarter over quarter and significantly higher than the 75 cents in earnings reported for the prior-year period. These results also handily beat Wall Street forecasts, which called for revenue of $10.7 billion and earnings per share of $46.67, respectively.
With strong AI data center demand driving up NAND prices, it's no surprise that Sandisk reported $4.8 billion in data center revenue, a nearly 1,700% year-over-year increase. Yet despite these strong numbers, the market reacted negatively. As can often happen with growth stocks, failing to beat estimates sufficiently can create angst among investors. Moreover, while results beat expectations, Sandisk's Edge commercial unit reported revenue of $5.8 billion. That was a 320% year-over-year increase, but it fell short of estimates calling for around $6.1 billion in revenue.
The takeaway with this cyclical story stock
Sandisk's latest sell-off may not be over just yet. Earlier this year, its sales were nearly doubling on a quarter-over-quarter basis, but management is guiding for slower growth next quarter, with revenue forecast to land in the $12.2 billion to $12.6 billion range. That would amount to just an 11% to 14.5% quarter-over-quarter increase in sales.
Sandisk may trade at only 5 times forward earnings, but its low valuation reflects the highly cyclical nature of the memory chip business. Yes, Sandisk's upcoming 8-for-1 stock split could trigger a relief rally, even though stock splits have no bearing on company fundamentals. However, until the current narrative surrounding Sandisk shares shifts toward a more favorable one, I consider it best to not fight the trend.
Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.