r/valueinvesting
Behind SanDisk's +1200% YoY melt-up
SNDK's surge is driven by AI-driven SSD shortages & high margins, but valuation prices in perfection; author holds cautiously despite viewing it as a 'too hard' investment.
- AI infrastructure buildout guarantees SSD shortage and protects high gross margins (78%) until at least 2028.
- High entry barriers and oligopolistic market structure provide pricing power and limit new competition.
- Potential for SNDK to replicate TSMC-like decommoditization success by moving up the value chain in enterprise storage.
- Current valuation prices in 95% of expected success in market share gains, leaving little margin for error.
- Historical cyclicality of the SSD industry suggests current extreme margins are unsustainable once supply constraints ease.
- The thesis relies heavily on external AI capex trends rather than durable competitive moats, making it highly volatile.
SNDK is recently added to a premium stock picking service. I did lots of research to understand the business, the industry, and the AI buildout that trigger everything. I turned my research in the attached notes and would like to learn your feedback and opinion on SNDK. (I had \~1% of portfolio on it.)
I think understanding the peculiarities of the SSD industry under the AI buildout backdrop is the core to build any thesis for SNDK. It's much more relevant that SNDK's own operation. Core findings:
- The SSD is haunted by the cyclic nature, maybe more severely than other Semi-conductor industries because of it's very high fixed cost relative to marginal variable cost to make bits.
- The SSD industry is a oligopoly due to high entry barriers from capital requirement and engineering challenges.
- SNDK's recent revenue shoot up is purely driving my price mark up and moving to higher margin enterprise SSD. Their Q2 gross margin is 78%! This is unlikely to sustain after the SSD shortage ease.
- 95% of SNDK's current market cap is pricing in the decommoditization of enterprise SSD and SNDK's pulling up in the competition from 5th market share. It's a long shot though mathematically possible. It's stock price is magnifies the volatility of market consensus on AI capex.
- Such decommoditization has happened before: TSMC did just that through Apple's iPhone era. But it's clearly a uphill battle. Most of Apple's suppliers stay commodity suppliers.
- SNDK's tools are shortage ensured by the shortage AI buildout until 2028, its NBMs contracts, and the opportunities from new AI tech restructuring SSD's role in the stack.
Personally, I hold because of the stock picker service I trust added a position. If it's up to me, it clearly belongs to the "too hard" class. But like the simulation in my post, there can still be upside, depending on how AI buildout progress after 2028. Before then, the shortage is guaranteed and SNDK's crazy gross margin is protected.
Just a comment on Apple suppliers being stuck playing a commodity game… You can do what Apple does i.e. artificially keep your supplier’s prices low for as long as you control a huge chunk of their revenues. Basically you can tell them: the price for this will be $X and unless it is $X I will walk away (which is the Steve Jobs method pretty much). And the supplier can’t risk losing 70 or 80% of their revenue if you walk away, so they’ll just go back and figure out how to meet that (at the expense of their margins). This way you can keep compressing them (sometimes for decades). However, once other companies with higher margins (e.g. Nvidia or Broadcom) who can afford to pay more from the start, come in and start buying the same products, and you go down to being 10-20% of suppliers revenue, your leverage to negotiate and compress prices goes down substanitally. So not all commodities stay commodities forever. Especially things that are really hard to do. It’s actually more amazing that memories have been a commodity for such a long period of time. That being said, they are still destined to be cyclical, but that cycle wave may just move upwards all together. Meaning the age of cheap memories could just be over, and the cycle will just cycle between expensive and less expensive. It really all goes back to the margins of companies that are buying memories. Can those remain high enough such that they can afford to pay more than before.
This also what I’m thinking. Yes, it’s gonna grow into a bubble. But when it pops it’s not gonna reverse to previous level, it’s gonna on level that is multiple higher than before.
The reasons is that now that we have built thousands new of data centers, they now have a lot of maintenance to do.
If course more fabs are gonna be built to meet demand. It will surely create price pressures downward on chips and memory, but the volume is multitudes larger than before which translate to revenue and earnings multitudes higher than before.
Will data centers have enough funding to be built until 2028?
Im more in Dell interested
Why indeed ?
why dell?
Solid writeup, and your “too hard” instinct is the right one. A few things I’d add:
The cyclicality is starker than the 78% margin suggests. Sandisk posted a non-GAAP loss and a 22.5% gross margin in March 2025, then 78.4% a year later. The trough was four quarters before the peak. That’s not a business decommoditizing, it’s one cycling with huge operating leverage.
The TSMC comparison flatters it. TSMC became the only viable supplier of leading-edge logic. NAND is a five-way commodity where Sandisk is the smallest player, shares fabs with Kioxia, and has no process lead on Samsung, SK Hynix, or Micron. The real “can memory decommoditize?” comp is DRAM/HBM, and the answer is: fat margins at the peak, still cyclical. HBF is the only place a moat could form, and it’s co-developed with SK Hynix, so not even proprietary.
“Shortage guaranteed to 2028” is a forecast, not a fact, and it’s the whole thesis. A hyperscaler capex plateau (already a 2027 risk), demand pulled forward by the long-term contracts and restocking, or a faster supply response can each break it. NAND bits grow from layer-stacking, not just new fabs, and the most aggressive NAND investors are the two players without DRAM: YMTC and Sandisk itself. It’s part of the supply response that ends its own run.
Also worth noting the optical cheapness is the trap: \~12x looks cheap because it’s 12x peak earnings. On mid-cycle it’s \~75x. Low P/E at the top is how cyclicals lure value buyers.
The bet isn’t that enterprise SSD decommoditizes. It’s that peak-cycle margins persist, and no memory maker has ever held margins like these through a cycle. If you’re holding, decide your normalized-earnings number now, before the tape decides it for you.
the full analysis on SNDK and 100 other tickers at sparkyscoffeefund.com
You people are so pathetic lmao