Sandisk Is Riding the AI Tidal Wave, but We See Pricing Strength as Finite
We believe Sandisk is prone to market-driven cyclicality in memory chips and doesn’t hold pricing power over its customers, which leads to low and volatile profitability over the course of a cycle. We consider NAND flash memory chips as a commodity and see high fungibility among flash chipmakers’ offerings. In periods of tight supply and strong market pricing, Sandisk’s profit margins can be robust. We see this in the current immense upcycle, led by artificial intelligence demand. However, these periods are often followed by a glut of oversupply, which pressures pricing and can lead to profit compression. Our long-term expectations for cyclicality in the business and commodity, low-margin products inform our view that Sandisk doesn’t hold an economic moat. We expect rising NAND demand over the medium term, but for supply/demand alignment to fluctuate, leading to market cycles for pricing regardless of strong demand.
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