"Storage giant" SanDisk plummets 20% in a single day, strong performance unable to counter dual concerns of profit and valuation

Despite delivering impressive quarterly results and providing extremely optimistic guidance, the storage chip manufacturer SanDisk still faced a stock price collapse.

On Thursday, SanDisk's stock price plummeted about 20%. The stock retraced its previous gains under multiple pressures, including an overall sell-off in the tech sector, concerns over factory costs, and anxiety about whether the rise in NAND flash memory prices could be sustained.

Just a few days ago, the company had just received market acclaim for its strong first-quarter financial report and significantly better-than-expected second-quarter performance guidance, with analysts setting target prices as high as $230 to $300.

Analysts believe that in the cyclical storage chip industry, a strong growth story alone is not enough, and scrutiny of profit margins and valuations is becoming the market's focus again.

Strong Performance, But Cost Shadows Loom

The direct catalyst for this sell-off was not negative news about SanDisk itself.

SanDisk's first-quarter revenue reached $2.31 billion, a year-on-year increase of 23%, with earnings per share of $1.22 significantly exceeding the expected $0.58.

Additionally, the company's management raised guidance, expecting second-quarter earnings per share of $3.00 to $3.40, far exceeding the market consensus of $1.77, with revenue expectations of $2.55 billion to $2.65 billion.

However, underlying these numbers are actual constraints. Approximately $60 million in wafer fab startup costs remain high, along with $10 million to $15 million in underutilization costs continuously eroding recent profit margins.

Goldman Sachs analysts pointed out that while profit margins are expected to "significantly improve" as wafer fab costs decline, the timeline remains uncertain.

The company's profit margin for the quarter is expected to be 29%, significantly lower than the market expectation of 31.2%. For a company whose stock price has soared over 600% since its spin-off from Western Digital in February 2025, this margin gap clearly does not satisfy investors' "appetite."

Overheated NAND Market and Valuation Risks

The broader volatility in the NAND market has exacerbated investor unease.

Storage chip prices have surged recently, with Western Digital raising NAND contract prices by 50% in November, and the spot price of 1TB TLC NAND nearly doubling from $4.80 to $10.70 since July.

Goldman Sachs' analysis shows that there is currently a 5% supply gap in the NAND market. However, analysts believe that such strong pricing power is leading to supply hoarding and uncertainty in profit margins, and once customers complete their inventory builds, demand may collapse rapidly.

Most importantly, SanDisk's valuation is at a high level.

Before Thursday's plunge, SanDisk's stock price was well above the MarketBeat consensus target price of $183, with a price-to-earnings ratio approaching 765 times, providing very little margin of safety for momentum-chasing investors. Analysts' target prices had previously reached as high as $230 to $300 Analyst opinions are currently divided. Bernstein and Fox Advisors maintain a "Strong Buy" rating, believing that the tight supply and demand for NAND supports premium valuations; while Weiss Ratings insists on a "Sell" rating, pointing out valuation and execution risks.

Goldman Sachs suggests that for the stock price to stabilize, investors need to see a substantial decrease in foundry startup costs before 2026, and that NAND pricing remains stable even if supply tightens. If either condition is not met, adjustments may last longer.