SanDisk, Micron, Western Digital stay cheap despite rallies
SanDisk, Micron and Western Digital have rallied sharply this year, but the story says they still screen cheap on forward valuation metrics despite AI and cyclical concerns.
Top memory stocks like SanDisk (NASDAQ: SNDK ), Micron (NASDAQ: MU ) and Western Digital (NASDAQ: WDC ) have jumped by triple digits this year, beating the S&P 500 and Nasdaq 100 indices.
SanDisk has surged 553%, pushing its valuation above $233 billion.
Micron and Western Digital have also climbed sharply, gaining 227% and 160%, respectively.
Meanwhile, the Roundhill Memory ETF (CBOE: DRAM) has nearly doubled since its launch on April 2.
Still, despite these rallies, the companies remain highly undervalued using popular metrics.
SanDisk has a forward price-to-earnings ratio of 7.45, much higher than the technology sector median of 23.
This figure is also much lower than the S&P 500 Index’s average of 21.
Micron also has a forward PE ratio of 13.1, also much lower than the five-year average of 74.
Its forward PEG ratio was 0.08, also lower than the technology sector median of 0.68.
Read Also: Crude Oil Price Steady as Iran Plots Escalation Amid US Sanctions Threat Western Digital, SanDisk’s former parent company, has a forward PE ratio of 22.
Other memory companies, such as Samsung, SK Hynix, and Seagate Technologies, are also trading at bargain levels.
These cheap valuation metrics are coming even as the companies release strong financial results amid the artificial intelligence boom.
Micron’s third-quarter revenue jumped to $40 billion, while SanDisk and Western Digital’s revenue soared to $8.97 billion and $3.75 billion, respectively.
They all boosted their forward guidance, and there is a potential for accelerated share buybacks.
Samsung and SK Hynix have all announced share buybacks worth over $100 billion in the past few days.
AI Bubble and Cyclical Risks There are two main reasons why these companies are trading at bargain prices.
First, there are concerns about the AI industry, which some analysts believe is in a bubble that may pop any time soon.
Michael Burry has become one of the most vocal pessimists about the industry.
Investors are also concerned about the cyclical nature of the memory industry.
Historically, the industry has been characterized by periods of booms followed by bursts.
A good example of this is what happened in 2023 when most companies experienced a 50% revenue drop as demand cooled.
Now, however, the companies note that things are different, citing the large multi-year deals they have entered into with several large buyers.
These deals have put in place firm commitments, with floors and ceilings for their chips.
In a recent statement, SanDisk noted that it had signed deals with eight customers, representing about 50% of bits in FY’27 and two-thirds of bits in FY’28.
It is still unclear how durable the approach will be in the future as more capacity come online.
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