SanDisk stock extended its sell-off and fell to its lowest level since April. It has dropped 65% from its highest point this year, and the decline has accelerated amid the ongoing artificial intelligence (AI) rout. Still, the stock now looks highly undervalued, which could make it a good investment once the AI panic ends.
SanDisk stock has become highly undervalued
The ongoing panic in the AI industry has produced some highly undervalued companies, as many investors worry that the bubble is bursting. SanDisk has become one of the most undervalued stocks as a result.
Seeking Alpha data shows that the company has a forward price-to-earnings ratio of 3.90, much lower than the technology sector median of 20.25.
A multiple this small usually signals that investors expect the company to have no growth. In reality, however, SanDisk’s business is firing on all cylinders. The most recent results showed that its first-quarter revenue rose by 23% sequentially and 378% from a year earlier.
READ MORE: Micron, SanDisk stocks crash nearly 30% in a week: has AI selloff gone too far?
The revenue growth has coincided with the ongoing profit momentum. Its quarterly profit jumped to $8.1 billion from $112 million in the same period last year. The management expects that the revenue growth will continue in the coming quarters as demand continues growing.
Analysts expect that its second-quarter revenue will jump by 313% to $12.5 billion, with the annual figure rising by 144% to $50 billion. Based on its track record since being a publicly traded company, chances are that SanDisk’s revenue and profits will be higher than this.
Most importantly, SanDisk has worked to reduce the risk of a sharp revenue drop when the cycle ends. It has signed long-term contracts with top hyperscalers that set floor and ceiling prices. This means that even when the cycle turns, its revenue is unlikely to plunge as it did in past cycles.
In a statement today, analysts from Bank of America predicted that the memory supercycle will go on through 2028. Meanwhile, Morgan Stanley analysts believe that DRAM pricing will peak in the current quarter, with the cycle elongating rather than collapsing.
Goldman Sachs sees the shortage persisting through 2028, while JPMorgan expects the pricing downcycle will happen later next year. These concerns, together with the midterm elections, explain why SanDisk and other memory stocks have dropped.
Analysts have scaled down their bets on the stock. Wells Fargo reduced the target from $1,550 to $1,300, while Royal Bank of Canada (RBC) fell from $1.600 to $1,400. Other analysts, including Susquehanna, Cantor Fitzgerald, and Zacks have also lowered their outlooks.
SNDK stock price technical analysis
SanDisk stock chart | Source: TradingView
The daily chart shows that the SNDK stock has dropped sharply in the past few months, moving from a record high of $2,355 in June to the current $860. It has dropped below the important support level of $998, its lowest level in July.
The stock has also dropped below the 61.8% Fibonacci Retracement level. It has also remained below the Supertrend indicator.
Also, it has formed what looks like an inverted cup-and-handle pattern, which is a common continuation sign. Therefore, the most likely scenario is where it continues falling, potentially to the 78.6% retracement level of $537.
Technically, the stock is going through the markdown phase of the Wyckoff Theory, which leads to more downside. In the future, however, there is a risk that the stock will bounce back once investors start buying the dip.
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