Key Points
Seagate's earnings last night set the computer memory sector on fire this morning.
Seagate was supposed to earn $3.48 per share (pro forma). It beat that number by $0.62.
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Fresh off a near $70-a-share drop Tuesday, shares of Sandisk (NASDAQ: SNDK) bounced back on Wednesday -- and investors can thank Seagate Technology (NASDAQ: STX) for the bump. Seagate crushed analyst forecasts last night, earning $4.10 per share versus a $3.48 non-GAAP forecast. Sales of $3.1 billion likewise beat expectations for less than $3 billion.
Investors are exuberant, and they're buying computer memory stocks hand over fist this morning. Sandisk is up 8.5% through 10:25 a.m. ET.
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What Seagate's good news means for Sandisk
Sandisk stock got beaten up yesterday after The Wall Street Journal reported that OpenAI is spending too much money on artificial intelligence chips and the high-bandwidth memory to support them. Today, investors are starting to realize that "too much" spending on memory might be "just right" for companies that sell memory -- like Sandisk and Seagate.
In last night's report, Seagate reported 44% year-over-year sales growth, a 12-percentage-point increase in operating profit margin to 32.1%, and GAAP earnings per share more than doubled to $3.27. Even better news for Seagate (and Sandisk), it turns out the market for memory is so strong right now that Seagate was able to raise its guidance:
Instead of the less than $4 a share Wall Street thought it would earn this year, Seagate now expects to earn $5 a share.
What's next for Sandisk stock?
Seagate CEO Dave Mosley says we're entering "a new era of structural growth as AI applications amplify data creation and support sustained storage demand." That's great news for Seagate, and for Sandisk stock as well.
And the best news of all? Seagate stock costs more than 32x forward earnings right now, but Sandisk costs less than 20x.
Sounds like a bargain to me.
Should you buy stock in Sandisk right now?
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Rich Smith 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
