SanDisk (NASDAQ:SNDK) is among a cohort of memory stocks that have soared majestically over the past year but have also been subjected to a bit of a beating recently. While profit-taking in a name that, even after the pullback, has added 154% year-to-date and more than 1,000% over the past 12 months is only natural, the recent drop has also been driven by another factor: Google’s unveiling of TurboQuant, a new compression technique it claims could cut the memory needed to operate large language models by a factor of six.
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Forget margin or options. Here's how the pros trade SNDKThat has raised concerns among investors about how it could affect memory makers, as these companies have been benefiting from strong AI-driven demand. But following investor meetings with some of SanDisk’s C-suite, Citi’s Asiya Merchant, an analyst ranked among the top 1% on Wall Street, says the company does not see it as a threat.
In fact, its introduction could be a good thing. Basically, TurboQuant is a compression technology that management views as a way to improve hyperscaler return on investment by making AI workloads easier to scale, which could in turn encourage wider adoption of AI applications. In that event, lower per-model memory requirements could be offset by higher overall AI usage, ultimately supporting inference-driven storage demand rather than undermining it.
“This is counter to the initial market reaction, which was instead focused on the short-term view that more efficient AI models would simply reduce memory demand,” the 5-star analyst explained.
That was not the only topic the talks focused on. Demand for memory was naturally addressed, too. Here, management appeared “incrementally more confident in the durability of demand,” supported by “continued hyperscaler strength and ongoing traction of AI-related workloads,” as well as its own initiatives aimed at securing more “favorable deal economics” that enhance cash generation.
Meanwhile, customer conversations and negotiations suggest a growing priority on securing NAND supply rather than focusing on price. Management is concentrating on building strategic relationships with longer contract durations, while also incorporating pricing structures with fixed or floating components designed to reduce exposure to cyclical volatility.
“Price discovery is still underway and, to us, this suggests pricing has room to further tick up,” Merchant said on the matter.
Furthermore, market researcher TrendForce expects total NAND average selling prices to increase by 70% to 75% sequentially in the second calendar quarter, following an 85% to 90% sequential uptick in the prior quarter.
“We remain constructive on SNDK shares as demand durability, favorable pricing, strong FCF generation ability, debt reduction, and disciplined capital investments should bode favorably for the company,” the analyst summed up.
To this end, Merchant assigns SNDK shares a Buy rating and an $875 price target. The implication for investors? Upside of 42% from current levels. (To watch Merchant’s track record, click here)
11 other analysts join Citi in the bull camp, while an additional 3 Holds can’t detract from a Strong Buy consensus rating. The Street’s average target lands at $700, suggesting gains of ~14% are in store for the next year. (See SNDK stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.