Crowned as the most overbought stock in history (with RSI above 99), Sandisk nosedived ahead of the bell Thursday. Can we call it a ‘flash crash?’
📉 Great quarter, *crickets chirping*
- Sandisk stock fell roughly 8% in premarket trading Thursday after its outlook failed to satisfy extraordinarily high expectations.
- The shares had already lost 5.4% Wednesday. With this stock, a routine disappointment apparently requires a double-digit round trip.
- Fiscal fourth-quarter adjusted earnings reached $39.25 per share, crushing Wall Street’s $34.96 forecast. Revenue soared to $8.97 billion, also comfortably ahead of the $8.48 billion expected.
- Those are not typos, although last year’s figures make them look suspiciously like typos.
- Sandisk earned just $0.29 per share on $1.9 billion in revenue a year earlier. Adjusted profit therefore exploded by roughly 13,500% while sales climbed 372%.
💾 AI demand creates a memory squeeze
- Data-center revenue reached $2.98 billion, beating analysts’ $2.74 billion estimate and more than doubling sequentially.
- Cloud giants including Amazon, Meta and Alphabet are buying vast quantities of memory to equip AI data centers, leaving supply struggling to match demand.
- Limited supply has pushed memory prices and Sandisk’s margins sharply higher. Adjusted gross margin reached 84.6%, up from 26.4% one year earlier. Gross margin measures how much revenue remains after direct production costs. At 84.6%, plenty remained.
- Sandisk has signed 10 long-term supply agreements worth at least $93.9 billion, providing several years of revenue visibility. Half its output through fiscal 2027 is already covered, potentially reducing the boom-and-bust cyclicality historically associated with memory chips.
🎢 Valuation gravity joins the party
- Sandisk expects fiscal first-quarter revenue of $10.3 billion to $10.8 billion, versus Wall Street’s $10.82 billion forecast. Adjusted earnings should land between $44 and $46 per share.
- The shares had surged from last year’s levels, with the relative strength index above 99.
- RSI measures recent price momentum from zero to 100. Anything above 70 is traditionally considered overbought. Ninety-nine is practically atmospheric re-entry.
- Sandisk has since surrendered roughly half its value from the record peak, often swinging by double digits in either direction.
- In a few short years, Sandisk has evolved from your boring memory sticks maker into a meme-stock label, into a profitable AI supplier with super-user-meme-stock-on-steroids volatility.