Sandisk stock price may suffer a harsh reversal soon: here’s why

Sandisk stock price continued its remarkable bull run this week, reaching a record high of $501. SNDK has jumped by over 100% this year, making it the best-performing company in the S&P 500 Index. 

Its surge is a continuation of a bull run that started in April last year, when it bottomed at $30. Other memory companies like Western Digital and Micron have also jumped by over 30% this year. 

These companies are beating other top players in the AI industry, like Nvidia, AMD, and Palantir.

Global memory shortage and AI boom 

Sandisk stock price has jumped because of the ongoing memory shortage as demand from data centers. A recent report showed that data centers will consume 70% of the memory chips.

Another report by ADC showed that the shortage in the industry will continue in the next few years as companies are not keen on radically increasing their manufacturing because the industry is known for its boom and bust.

The ongoing shortage means that companies like Sandisk and Western Digital are largely sold out for the year. Additionally, these companies have gained substantial pricing power. As a result, the company will likely continue delivering strong financial results this year.

The most recent results showed that the company’s growth continued in the last quarter, with its data center revenue surging by 26% to $269 million. Its edge revenue rose by 26% to $1.38 billion, while the consumer segments made $652 million, helped by the ongoing Windows 11 refresh cycle.

Sandisk’s profitability also continued rising in that quarter, with the operating income surging by 145% QoQ to $245 million.

Jensen Huang sees the AI boom continuing 

Sandisk stock price jumped after Jensen Huang, the head of Nvidia said that the boom was continuing and that its supply was largely sold out for the year. This explains why other companies in the AI industry, including Micron and Western Digital, surged on Wednesday.

Wall Street analysts believe that Sandisk’s business will continue booming. The upcoming results are expected to show that the revenue rose by 42% in the last quarter to $2.6 billion.

Analysts also expect that the annual revenue will be $10.94 billion, up by 48% YoY. However, they also expect that the revenue growth will slow down to 29% to $14 billion in the next financial year.

Still, there are some potential risks that the SNDK stock faces. For example, the current stock price is much higher than the consensus estimate among analysts. The consensus is $327, implying a 34% drop from the current level as the chart below shows.

Additionally, there is a risk that the company will experience an inventory challenge in the next few years if the AI boom stalls.

The stock has also become highly overvalued, with its forward price-to-earnings ratio rising to 34, higher than the sector median of 24. As such, there is a risk that it will drop when its upcoming results on January 29th comes short of expectations.

Sandisk stock price technical analysis 

Technical analysis suggests that the stock may crash soon too. For one, it remains much higher than the 100-day Exponential Moving Average (EMA), which is at $218. This means that the stock may crash because of the concept known as mean reversion.

Additionally, oscillators suggest that the stock has become highly overbought. The Relative Strength Index has moved to the overbought level of 86.

Therefore, these indicators mean that the stock may drop soon as investors start to book profits. If this happens, the next key support level to watch will be at $400.

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