Key Points
Argus initiated coverage of Sandisk today. The analyst didn't recommend buying it.
Sandisk is earning incredible profits, but its success is already baked into the stock price.
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Sandisk (NASDAQ: SNDK) stock slid 7.3% through 3:05 p.m. ET Wednesday after Argus Research initiated coverage of the computer memory stock with a lukewarm "hold" rating in the midst of widening worries about the durability of demand for pricey computer memory chips.
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Why Argus isn't ardent for Sandisk
In Argus's note, covered on TheFly.com today, the analyst admits Sandisk is "well-positioned ... in NAND flash solutions." This is hardly new information, however, and investors have already rewarded Sandisk for its leading position with a more than 4,000% increase in share price this year.
Argus acknowledges the logic: Sandisk makes NAND, which artificial intelligence data centers need to run their AI chips. Supply is low, demand is high -- and rising -- and this has driven up both prices and profit margins to great heights.
Argus expects this trend to continue, but also wants to hedge against the risk that "any tempering in demand could cause a severe reaction in product pricing and the share price."
Is Sandisk stock safe?
I agree -- to an extent.
Priced at 60 times trailing earnings, Sandisk stock looks cheap today, especially with analysts forecasting profits to more than triple next year, and then rise another 32% in 2028. So Sandisk probably has room to run in the short term.
Longer term, though, NAND supply will catch up with demand. Sandisk profits could drop dramatically in 2029 -- and return to 2026 levels by 2030. Contrary to bullish hopes that computer memory prices will only go up forever, many analyst forecasts suggest the semiconductor industry remains a cyclical industry.
The boom has been exciting, and the bust may not happen soon -- but it will happen eventually. People selling Sandisk today are just making sure they don't get trampled when everyone heads for the exits.
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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.
