Why Sandisk Stock Finally Popped Today
Key Points
Investor worry over China and AI volatility scared Sandisk investors this week.
Today, they remembered that so long as AI hyperscalers are spending, Sandisk will do fine.
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Is Sandisk (NASDAQ: SNDK) stock just a momentum stock now?
It really feels like it lately. After falling nearly 37% over the past four trading days, shares of the NAND semiconductor memory stock exploded this morning, surging 21.5% through 10 a.m. ET.
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Competing "narratives" about what's going on in artificial intelligence may be the reason.
Image source: Getty Images.
Several theories on what's happening with AI
HSBC analyst Alastair Pinder explains that high profit margins at Sandisk and other memory stocks have attracted the attention of China, which hopes to flood the market with cheap, mass-produced memory chips, undercut Western companies' pricing, and steal market share.
The recent IPO of Chinese DRAM manufacturer CXMT illustrated the risk, raising $8.5 billion in a day to fund its expansion. And while this isn't an immediate threat to Sandisk (which doesn't make DRAM), it highlights a risk if Chinese NAND manufacturers follow CXMT's lead.
This theory explains 20% of recent market volatility, says Pinder. "AI positioning capitulation" explains another 26%. Here, investors frustrated by continual pops and drops among semiconductor stocks are fleeing the sector and buying defensive stocks instead. Combined, these two theories explain most of the recent selling in semiconductors.
The opinion Sandisk fans prefer
But now here's the theory that has investors excited about semiconductors, and Sandisk especially, this morning:
37% of market volatility -- upside volatility -- comes when investors believe that AI hyperscalers such as Google, OpenAI, and Anthropic are overspending on AI capacity. These companies may never see a profitable return on their investment if revenue fails to grow as fast as spending. Meantime, though, all this spending on AI memory chips does benefit Sandisk immensely.
Strange as it sounds to say it, bad news for AI hyperscalers should be good news for Sandisk.
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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.
