Sandisk Earnings Beat Estimates but Shares Slide 5% as AI Memory Rally Fuels Profit-Taking

Key facts

• 3Q adjusted EPS of USD23.41, beating analyst expectations.
• Quarterly revenue surged 2.5 times year-over-year, driven by AI-related memory demand.
• Data-center revenue jumped 645% from the prior-year period.
• Shares fell 5% in after-hours trading following the earnings release.
• The stock has rallied nearly 300% since the start of the year.
• Evercore analyst Amit Daryanani commented on the results on CNBC's 'Closing Bell Overtime'.
• Analysts project further upside of 26% for Sandisk and 33% for Micron.
• Hong Kong investors closely tracked the stock, which saw intraday gains of over 5% before the sell-off.

Earnings Beat Fails to Sustain Rally

Sandisk Corporation (SNDK.US) delivered third-quarter adjusted earnings per share of USD23.41, surpassing consensus estimates, yet the stock tumbled 5% in after-hours trading on Friday. The decline came despite a blockbuster quarter in which revenue more than doubled year-over-year, fueled by insatiable demand for AI-driven memory and storage solutions. Investors who had ridden a nearly 300% rally since January appeared to lock in profits, a pattern often seen when strong results are met with supply-chain anxieties and stretched valuations. The company’s data-center segment, a key growth engine, posted a staggering 645% revenue increase from the same period last year, underscoring the central role of flash memory in artificial intelligence infrastructure.

AI Memory Boom Drives Record Data-Center Sales

The earnings report, released after the market close on Thursday, revealed that Sandisk’s top line was propelled by hyperscale cloud providers and enterprise customers racing to deploy AI workloads. The data-center business alone accounted for a disproportionate share of the growth, with revenue leaping to levels that exceeded even the most bullish forecasts. Company executives attributed the surge to the rapid adoption of high-capacity solid-state drives and NAND flash products optimized for AI training and inference. The broader memory industry has been grappling with tight supply, and Sandisk’s ability to secure wafer allocations and ramp production has been a competitive advantage.

Profit-Taking and Supply Constraints Weigh on Sentiment

Despite the headline beat, after-hours selling pressure reflected lingering concerns about the sustainability of the AI memory cycle. Some traders interpreted the results as a cue to cash out after a meteoric run, a dynamic that has played out across the semiconductor sector in recent months. Supply constraints, while boosting pricing power, also raise the risk of order fulfillment delays and customer pushback. Analysts noted that Sandisk’s forward guidance, though not explicitly detailed in the release, likely factored in a cautious outlook on capacity expansion. The company’s stock had risen more than 5% during regular trading on Friday before the after-hours reversal.

Analyst Optimism Tempered by Valuation

Evercore analyst Amit Daryanani, speaking on CNBC’s ‘Closing Bell Overtime,’ characterized the quarter as “solid” but acknowledged that the market’s reaction was not surprising given the stock’s year-to-date performance. He reiterated an overweight rating, projecting a 26% upside for Sandisk and a 33% gain for rival Micron Technology. Other analysts have similarly flagged that while the AI memory trade remains intact, near-term volatility is inevitable. The sector has become a battleground between bulls who see a multiyear supercycle and bears who warn of inventory corrections and geopolitical headwinds.

Hong Kong Investors Track Intraday Swings

In Hong Kong, where Sandisk has emerged as a closely watched stock, the earnings release triggered sharp intraday movements. Shares climbed more than 5% during the Friday session before the after-hours sell-off erased those gains. Local media outlets highlighted the stock’s nearly 300% rally since the start of the year, framing the pullback as a natural consolidation. The company’s dual listing on the U.S. exchanges and its exposure to the global AI supply chain have made it a bellwether for Asian investors seeking exposure to the memory market. The earnings beat, while overshadowed by the stock’s decline, reinforced the narrative that Sandisk is a prime beneficiary of the AI boom.

Outlook: AI Demand vs. Capacity Constraints

Looking ahead, Sandisk faces the delicate task of balancing explosive demand with the physical limits of its fabrication capacity. The company has invested heavily in expanding its NAND flash output, but new fabs take years to come online. In the interim, pricing power remains strong, but any signs of easing demand from hyperscalers could trigger a sharp re-rating. The broader memory industry is watching for cues from Micron’s upcoming earnings, which will provide a cross-check on the AI demand thesis. For now, Sandisk’s results confirm that the AI memory cycle is real and accelerating, but the market’s reaction serves as a reminder that even the best quarters can be overshadowed by valuation and supply-chain jitters.

The bottom line

• Sandisk beat 3Q earnings estimates with adjusted EPS of USD23.41, but shares fell 5% after hours on profit-taking.
• Quarterly revenue more than doubled year-over-year, driven by a 645% surge in data-center sales.
• The stock has rallied nearly 300% in 2024, making it vulnerable to valuation-driven pullbacks.
• Analyst Amit Daryanani projects a 26% upside for Sandisk and 33% for Micron, citing sustained AI memory demand.
• Supply constraints remain a key risk, potentially capping near-term growth and fueling volatility.
• Hong Kong investors closely tracked the stock, which saw intraday gains of over 5% before the sell-off.