Morningstar expects prices to cool down after memory producers’ new factories come online.
- “Sky-high pricing continues to drive results, but it looks to be decelerating sequentially,” the research firm wrote.
- SanDisk’s Q1 revenue soared 380% to $11.03 billion, beating analysts’ expectations.
- Morningstar lowered its fair value estimate for SNDK to $870 from $1,000, which implies a 35% drop.
SanDisk Corp. (SNDK) tumbled over 4% in premarket trading on Friday despite an upbeat quarterly report. However, Morningstar analysts flagged that memory price growth appears to be slowing sooner than expected, with a peak on the horizon and a downcycle thereafter.
“Sky-high pricing continues to drive results, but it looks to be decelerating sequentially,” the research firm wrote in its investor note on Friday. “To us, this indicates a pricing peak is on the horizon, in line with our thesis. Pricing is decelerating earlier and more quickly than we expected, and we still expect a severe downcycle after the peak.”
The research firm pushed back on management’s argument that long-term agreements would sustain high pricing, saying customers could renegotiate contracts or walk away if market prices fall below agreed levels.
While acknowledging strong AI demand growth, Morningstar said memory producers will significantly expand capacity between 2027 and 2029 to eventually bring prices down.
On the analyst call, SanDisk’s CEO said the company “started fiscal year 2027 with another quarter of strong performance, with robust and growing demand for our products driving outpaced growth in our data center business.”
Morningstar Cuts SNDK Target
“We see evidence to our thesis in recent results and guidance, with pricing growth decelerating quickly and revenue becoming volume-led,” it said, adding that further risks for U.S. producers stem from the growth of the memory industry in China.
Morningstar lowered its fair value estimate for SNDK to $870 from $1,000, implying a 35% drop from the stock’s Thursday closing price. SanDisk shares have rallied over 460% year-to-date.
SNDK Stock: Earnings Recap, Retail View
SanDisk’s fiscal first-quarter revenue soared 380% to $11.03 billion, beating market expectations of $10.72 billion, according to FactSet data. Adjusted profit also came in higher than expected at $49.51 per share, up from $46.67 per share in the year-ago quarter.
For the fiscal second quarter, SanDisk forecast revenue of $12.2 billion to $12.6 billion and adjusted earnings of $55 to $57 a share. Analysts had expected $12.31 billion and $53.60.
The company announced an 8-for-1 stock split, effective Nov. 19.
On Stocktwits, retail sentiment for SNDK shifted from ‘extremely bullish’ to ‘neutral,’ amid ‘high’ message volume. “$SNDK $200 billion company netting $8 billion per quarter with $9 billion cash flow is actually absurd. I don’t care what the cyclical or bubble theory is… you cannot hold those earnings down for long,” a trader wrote.
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