Sandisk has dropped roughly 35% from its late-June high, even though it remains the best-performing S&P 500 component of 2026. A NAND memory shortage tied to AI data center demand pushed the stock up before the pullback, and the shares now trade at seven times forward earnings.
Sandisk stock is down around 35% since its late-June peak, but it remains 2026's best-performing S&P 500 component even after the drop. The pullback follows a run driven by a shortage in the NAND memory chips the company produces.
A commoditized market with a supply squeeze
Sandisk makes NAND memory, used for long-term data storage. A memory chip shortage has emerged mainly because the AI data center buildout has consumed available capacity. NAND is a commoditized product, so when supply tightens and demand stays high, prices rise across the market. That dynamic is what pushed Sandisk's stock higher before the recent pullback.
None of Sandisk's input costs have changed, but what it can charge for its products has increased sharply. Its revenue rose 51% quarter over quarter, a pace few companies hit even on a yearly basis. The company said a third of that growth came from higher production, while two-thirds came from higher prices. Year over year, growth reached 372%.
Shortage conditions aren't expected to ease soon
The shortage will only ease through more production capacity or lower demand, and language from AI hyperscalers suggests demand won't fall anytime soon. Building new production facilities takes years, and any new capacity that memory chip makers add could be absorbed quickly by hyperscalers, extending the shortage further.
That backdrop is part of why the stock still looks inexpensive despite its run-up. Sandisk trades at just seven times forward earnings, a level that suggests the market is skeptical the current conditions will last. Its market cap stands at $217 billion. Its gross margin sits at 71.47%.
If the shortage persists over the next year and a half or longer, the current valuation could prove attractive to investors willing to bet on the trend continuing.
Source: Fool
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