Sandisk Corporation (NASDAQ:SNDK) stock fell nearly 10% in Thursday’s premarket session as investors questioned whether the memory-chip maker can sustain its unusually high profit margins after posting stronger-than-expected quarterly results.
The reaction contrasted with Sandisk’s quarterly performance. The company reported revenue of $8.97 billion, topping Wall Street estimates of $8.39 billion, but investors instead focused on management’s outlook and whether margins can remain elevated as the memory market evolves.
The earnings report also came after analysts cautioned investors that expectations had become increasingly difficult to meet following the stock’s sharp rally this year.
Analysts Urged Caution Ahead Of Results
KKM Financial founder Jeff Kilburg told CNBC that investors should remain patient after Sandisk’s rapid ascent following its separation from Western Digital Corp. (NASDAQ:WDC).
Kilburg said Sandisk climbed from about $48 to more than $2,300 before retreating roughly 40%, making it a high-beta stock that investors should avoid chasing.
Instead, he favored diversified semiconductor exposure through the iShares PHLX SOX Semiconductor Sector Index Fund (NASDAQ:SOXX), saying it offers broader industry exposure than the VanEck Semiconductor ETF (NASDAQ:SMH) because SMH has a larger concentration in NVIDIA Corp. (NASDAQ:NVDA).
Kilburg added that KKM Financial has actively managed its semiconductor exposure through holdings including KLA Corp. (NASDAQ:KLAC), Applied Materials Inc. (NASDAQ:AMAT) and NVIDIA, while trimming positions after strong gains. He noted the firm exited Micron Technology Inc. (NASDAQ:MU) last quarter to lock in profits.
Margin Durability Remains The Key Question
Susquehanna analyst Mehdi Hosseini told CNBC that Sandisk faces a different investment debate than Western Digital.
Rather than focusing on market share, investors are watching whether Sandisk can maintain exceptionally high margins as AI-related memory demand shifts from model training toward inference.
Hosseini said Sandisk, Micron and South Korean memory manufacturers are generating gross margins approaching 80%, making margin sustainability a central issue for next year. He added that growing AI inference workloads could increase NAND flash demand, potentially benefiting Sandisk more than some competitors.
By comparison, Hosseini said Western Digital faces competitive pressure as it trails Seagate Technology in the industry’s next-generation hard-drive transition. For Sandisk, he said, the key questions are whether AI inference will meaningfully boost NAND demand and whether the company can preserve its margins.
Investors Look Past Earnings Beat
Sandisk shares fell after the earnings release as investors looked beyond stronger-than-expected results and focused on mixed guidance, lofty expectations and profit-taking following the stock’s outsized rally.
The company reported adjusted earnings of $39.20 per share, exceeding analysts’ estimates by almost $5. Revenue also topped expectations at approximately $9 billion, while adjusted gross margin reached nearly 85%, above the Street consensus of about 80%.
However, investors viewed the company’s guidance as mixed, echoing the market’s reaction to Western Digital’s earnings report.
Sandisk had gained more than 460% year to date before reporting results, leaving little room for disappointment and prompting investors to take profits despite the earnings beat, CNBC reported.
Top ETF Exposure
- Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD): 7.64% weighting
- Invesco S&P 500 Pure Growth ETF (NYSE:RPG): 9.61% weighting
- First Trust US Equity Opportunities ETF (NYSE:FPX): 7.37% weighting
Because Sandisk represents a significant holding in these ETFs, large fund inflows or outflows could result in automatic buying or selling of the stock.
Price Action
SNDK Stock Price Activity: Sandisk shares were down 9.62% at $1,220.63 during premarket trading on Thursday, according to Benzinga Pro data.
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