Key Points
Shares in Sandisk have exploded upward because of rising AI-driven demand for memory and storage.
Investors should remember that memory is a cyclical industry.
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Sandisk (NASDAQ: SNDK) is the type of stock that growth-focused investors dream about. If you had bet $10,000 on the company just 12 months ago, you would have $327,200 today -- a return of roughly $3,272% that has been driven by optimism about the surging demand for memory and data storage hardware for artificial intelligence (AI).
But past performance doesn't guarantee future results. And investors who missed the big rally will be curious to know if Sandisk can maintain its explosive momentum. Let's dig deeper into the pros and cons of the company to decide what the next five years might have in store.
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Why is Sandisk stock surging?
For regular consumers, Sandisk is probably most recognizable for its USB flash drives, memory cards, and portable SSDs, which help people store things like documents and photos outside of their computers. But in the enterprise space, the company has become a leader in high-performance memory and storage solutions, which are vital for data centers that need to serve surging demand for generative AI-related workloads.
Memory is so important because it stores the vast amount of training and inference data that large language models (LLMs) need to operate. And Sandisk stands out because of its focus on NAND flash technology.
Unlike traditional hard disks, NAND flash is designed to store data electronically, with no moving parts, making it faster and more energy-efficient. While upfront costs can be greater, this can often make better economic sense for data center clients that need to process and store massive volumes of information around the clock.
Business is booming
Right now, the memory industry is caught in a perfect storm of rising demand and short supply, driving explosive growth and margins for the major players. Sandisk is no exception. Third-quarter revenue surged 251% year over year to $5.95 billion, driven mainly by data center demand and edge computing, which often refers to data solutions embedded within devices themselves instead of at a data center.
Perhaps most importantly, the company's gross margin is also exploding -- rising from just 22.7% in the third quarter of 2025 to a whopping 78.4% today. This number puts Sandisk ahead of the AI industry leader Nvidia, which reported a gross margin of 75% in its most recent quarter.
Investors love improving margins because they translate into better operating leverage, a metric that measures how efficiently a company converts top-line growth into profits. And Sandisk's third-quarter earnings per share skyrocketed from a loss of $0.30 to a gain of $23.41, easily explaining the stock's rapid rise as investors quickly reevaluate its intrinsic value. This trend looks set to continue in the near term as AI-related demand remains high and memory shortages keep prices elevated.
Image source: Getty Images.
The stock is still quite cheap -- but why?
Despite its surging stock price, Sandisk's shares remain quite cheap at a forward price-to-earnings (P/E) ratio of 24. For context, the S&P 500 averages 22, but Sandisk is growing significantly faster than the average company and would typically command a much higher premium.
Investors may still be cautious because the memory hardware industry is notoriously cyclical. Periods of booming demand are typically followed by a rapid increase in production capacity, leading to a supply glut and a decline in prices. There is also a risk that the current AI data center demand boom is itself a bubble that won't last much longer.
Over the next five years, these will be real risks for Sandisk. And it might make more sense to look for the next undiscovered growth phenom rather than betting on this company after its price has already risen so rapidly.
Should you buy stock in Sandisk right now?
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
