Sandisk's Skyrocketing Stock: What's Driving the Surge?

Sandisk has seen its stock price soar over the past six months, with a staggering increase of over 1, 000%. This impressive growth is largely due to the high demand for its NAND memory products, which are in high demand due to the growing investment in artificial intelligence (AI) infrastructure. As companies continue to invest heavily in data centers and AI, the need for high-performance memory and storage solutions has increased significantly. This trend has positioned Sandisk as a key player in the AI spending cycle, driving revenue growth. In addition to strong demand, industry supply constraints have created a favorable pricing environment. A global shortage of memory products has allowed suppliers to charge higher prices, which could lead to expanding margins for Sandisk if elevated volumes are sustained. Strong pricing power combined with rising shipments provides a compelling near-term earnings setup. However, technical indicators suggest that the rally may be stretched in the near term. Sandisk's 14-day Relative Strength Index currently stands at around 76, well above the 70 level that typically signals overbought conditions. This suggests that optimism may be running high ahead of earnings, raising the risk of a pullback if results or guidance fall short of elevated expectations. The derivatives market is also signaling heightened volatility around the earnings release. Options pricing suggests a potential post-earnings move of 11% in either direction for options expiring Jan. 30. This is notably higher than Sandisk's average earnings-related move of 8. 2% over the past four quarters. Notably, SNDK stock jumped 15. 3% following its previous earnings report.Sandisk appears well-positioned to deliver another quarter of solid growth as industry conditions continue to work in its favor. Momentum in the company's business is expected to carry through Q2, supported by a supply-demand imbalance that management believes will persist for an extended period. According to the company, demand for Sandisk's products currently exceeds supply across all end markets, and this dynamic is expected to remain in place through the end of calendar year 2026 and likely beyond. As a result, the company is likely to benefit from meaningful pricing leverage. For Q2, management expects the top line to be between $2. 55 billion and $2. 65 billion. This outlook is driven by double-digit price increases alongside higher shipment volumes, reflecting strong customer demand. One of the key growth engines continues to be the data center market, where demand remains robust. Hyperscale cloud providers, emerging neoCloud players, and original equipment manufacturers (OEMs) are deepening their relationships with Sandisk, strengthening the company's strategic position in high-performance storage. In addition, interest in Sandisk's storage-optimized solid-state drive platform is gaining traction, supporting long-term growth. Sandisk's profitability is also expected to improve meaningfully. Management forecasts adjusted gross margin between 41% and 43% for the quarter, supported by higher pricing and favorable cost dynamics. This margin expansion should translate into strong earnings performance, with adjusted EPS projected between $3. 00 and $3. 40. Notably, management's guidance is well above the Street's current estimate of $2. 94, continuing a pattern in which Sandisk has exceeded analysts' expectations in two of the past three quarters. Despite ongoing capital investments related to the BiCS8 transition, Sandisk anticipates generating positive free cash flow in the second quarter. This combination of strong demand, favorable pricing, and improving margins bodes well for growth.