By Britney Nguyen

Most of Sandisk's annual revenue could eventually come from its new business model contracts that provide better visibility, BofA says

Sandisk's stock fell Wednesday as investors moved out of the broader chip sector.

Shares of Sandisk fell Wednesday as investors moved out of the broader chip sector following a strong run in the first half of the year. But with supply shortages of NAND expected to persist through next year, one analyst sees more room for Sandisk's stock to run.

A possible factor dragging on the chip sector Wednesday was a Bloomberg report that Meta Platforms (META) is considering selling its excess cloud capacity, D.A. Davidson managing director Gil Luria told MarketWatch.

The possibility "is causing investors to consider whether incremental compute supply may dampen the data center buildout," Luria said in emailed comments, adding that Meta is a top five customer for computing power.

Therefore, "if it changes course on its buildout, that could ripple through the entire supply chain," he said.

Shares of Sandisk (SNDK) sank 10.6% on Wednesday but were still leading the S&P 500 index's SPX gainers with a more than 760% rally this year. Its fellow NAND flash memory maker Micron Technology (MU) saw its shares fall 10.6% after rallying 270% this year.

Among other chip makers, Intel's stock (INTC) fell 9%, Marvell Technology's (MRVL) dropped more than 8% and Advanced Micro Devices' (AMD) sank nearly 7%. Shares of Nvidia (NVDA) were down 1.3%, while Broadcom's stock (AVGO) was down 2.2%.

While this weakness could go on for a bit, Freedom Capital chief market strategist Jay Woods said it won't last long.

"We believe the theme of the second half of the year continues to be one of rotation where highflying technology consolidates over the coming quarter before breaking back to old highs by year end," Woods wrote in emailed comments.

Sandisk should continue to have strong pricing power, as demand for NAND is expected to remain ahead of supply through the middle of 2027, Bank of America analyst Wamsi Mohan said, although he added that sequential price growth will likely slow over time.

Mohan is modeling for Sandisk's sequential NAND bit growth to be higher than Micron's for the June quarter but for its average sales-price growth to be lower than that of its competitor.

Sandisk's price increases will be determined by its product mix and other drivers, like how many of its new business model contracts, or NBMs, it signs in a quarter, Wamsi said in a Wednesday note.

The company in April introduced its long-term NBMs, which it said are "backed by firm financial commitments" and should be helpful to earnings power.

Mohan said he expects a majority of Sandisk's cloud and client customers to sign NBMs, which he believes is a "win-win" for the industry given that customers can secure supply and some pricing, and Sandisk can have better visibility into demand.

While some investors remain concerned over the sustainability of memory demand in the long run due to fears that artificial-intelligence spending could end up lower than expected, according to Mohan, he said that Sandisk locking in an increasing portion of its business under NBMs is favorable, because it provides visibility past 2028. He noted that Sandisk has set up its NBMs to ensure it can keep its gross margin at a certain level.

Mohan raised his price target for Sandisk's stock to $2,500 from $2,100 in his Wednesday note, representing about 22% upside from current levels.

-Britney Nguyen

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