Even with Wednesday’s big gains, Sandisk shares are well off their highs from earlier in the year. But one analyst says the stock isn’t done clawing its way back from its lows.
Following recent chats with Sandisk’s management team, Evercore ISI analyst Amit Daryanani said new demand and pricing developments are working in the company’s favor.
Daryanani has a price target of $2,500 on Sandisk’s stock, implying that he thinks it can rise 154% from its current level near $983. Sandisk shares closed up 13.7% on Wednesday amid a broad-based rally in the chip sector.
Sandisk executives have emphasized to Daryanani that the NAND industry is undergoing a “structural shift” in which demand patterns for the industry are “changing materially” from historical cycles. NAND is a type of nonvolatile memory, meaning it stores data even when a power source is turned off, and prices for it are typically set by the industry.
Historically, manufacturers have kept production running even in cycles of soft demand, in part due to high fixed costs, according to Daryanani. That drove oversupply and pricing pressures. Yet now, he said, an industry shift is at play, with suppliers “managing supply against demand” rather than prioritizing supply to reduce costs.
Sandisk “does not view itself as supply constrained,” he said, and given its high profitability, it has little incentive to increase supply in the way it might have done previously. This shift is set to support a more “durable” earnings model, Daryanani wrote.
There’s another factor at play benefiting pricing for Sandisk. While historically, NAND customers have renegotiated pricing on a quarterly basis — which left Sandisk “exposed to significant volatility” — customers are currently pursing new business models that are focused on multiyear agreements. Those include things like demand commitments and financial guarantees.
Daryanani added that management has indicated that Sandisk’s negotiations with customers are increasingly focused on forecasts for demand extending years in advance.
Finally, with the data-center buildout in full swing, big cloud customers have been requesting NAND for data-center racks to be deployed immediately as opposed to discussing long-term demand needs or delaying orders. As the size of AI models grows, demand for NAND is only increasing, and that’s a major boon for Sandisk, Daryanani wrote.
“We think investors remain overly focused on how long NAND pricing can stay elevated rather than appreciating the structural changes to [Sandisk’s] model,” he wrote.
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