Holding SNDK long-term; fundamentals intact despite price drop and growth moderation; strong balance sheet and strategic initiatives support value creation.

Even though Sandisk has been quite cool again, the stock has crashed back down to Earth. Folks are in a panic. Let's talk about Sandisk. Here's a look at this chart from fiscal.ai on the stock price.

You can see back in July everyone was in a euphoria stage with Sandisk stock over $2,000 a share. As of this recording, stock's back down to around $1,200 per share.

And as you know, at Chip Stock Investor, we don't focus on the stock price too much, but let's take a look at some fiscal charts to help us figure out what's going on with SanDisk.

This would actually be Q1 of Sandisk's fiscal year 2027, the quarter that will end at the end of September. And I think the growth on a year-over-year basis is obviously still incredible.

After 370%-plus increase to finish off Sandisk's fiscal year. On a year-over-year basis, once again expecting at the midpoint, a well over 300%, closer to 400% year-over-year increase.

However, as we are going to dig into this a little bit more, what is the reason why the stock has come back to earth? Well, besides just volatility, especially with the unwinding of highly leveraged bets in Sandisk in the month of July, the growth is going to begin moderating from this point going forward, which is a healthy thing. We're totally fine with that.

When we bought Sandisk, we planned on hopefully holding it over a multi-year horizon. We were gonna keep it on a short leash if anything rapidly changed, but fundamentally, we have not seen anything that has fundamentally changed for the worse.

So we're happy to let this one continue doing its thing.

In addition to the revenue guidance, we also have adjusted earnings per share guidance for the new fiscal year for the quarter that ends in September. And once again, you can see even maybe a little bit more prominently here, a bit of flatlining expected going forward.

Again, massive year-over-year increase in both earnings per share and free cash flow per share is expected. But at the midpoint, Sandisk guided adjusted earnings per share expected to be $45 compared to $39.25 just reported in adjusted earnings per share in the final quarter of the fiscal year, the quarter ended in June.

Is this fantastic growth? Yes, it is. It's not the same type of growth that the company has been reporting the last three or four quarters. We're going to get a more moderate growth profile for the company at this point going forward, and that's okay.

Sandisk has used this windfall of cash in very wise fashion. They have no debt, plenty of cash on balance, and they're making a lot of stock repurchases. In this last quarter, $4.5 billion in stock repurchases.

You see long-term investments on this chart in the balance sheet at nearly 2.5 billion. Besides the Flash Ventures, that's the joint venture they have with Kioxia in Japan, their manufacturing partner. There's something else going on there as well.

So in addition to more moderate revenue growth, more moderate profitability increases, what this is going to turn into over the next few years is Sandisk pivoting to good shareholder returns, like via the stock buybacks, as well as advancement of their technology, development of their supply chain, and just making sure they crank out more consistent shareholder value creation.

Because we can no longer rely on the really wild average, average selling price, ASPs, on their SSDs, uh, like we have. That is now over now that Sandisk and the other memory companies have signed long-term agreements, uh, usually five-year agreements, with the hyperscalers and other data center companies.

Great resource to help you analyze businesses like Sandisk. This is where Sandisk falls in this computer memory hierarchy down there at the bottom, NAND flash, SSDs, and high bandwidth flash, which isn't really a thing yet. It's kind of sort of a thing. It's coming.

And in fact, there was a press release from a few days ago on August 3rd, Sandisk and SK hynix released the, HBF first technical specification, first OCP technical spec- specification for Google and Tenstorrent.

These companies can now test HBF in their product, make sure it works, and perhaps lay a roadmap to HBF in the future.

HBF is the technology roadmap for Sandisk. How about the supply chain? Let's take a look at that slide we showed you earlier on their long-term investments. You can see that they have 2.5 billion in long-term investments in this last quarter, and this is one of the reasons why.

Back in March of this year, Sandisk announced that they were going to be doing an e- equity investment in Nanya Technology.

And what you may ask, would Sandisk want to do making an equity investment in Nanya Technology? Sandisk securing more of its supply chain, bringing more of its supply chain in-house because those other three companies I just mentioned, SK hynix, Samsung, and Micron, are actually competitors.

They also make NAND flash. And so within every SSD, solid state drive, you actually need a little stick of DRAM. And so why source that from one of your one of your competitors if you can create your own independent supply chain that's not from a NAND flash competitor? Why not? Why not just do that? Great idea.

That was the gist of the investment in Nanya Technology by Sandisk. They can get these little, these little DRAM chips from them instead of one of the big three. Okay, so we covered the technological roadmap for Sandisk, the supply chain roadmap.

Both of those things sound great. The financials line up. The financials line up. Everything looks great.

But what about Sandisk more specifically, not just all the memory stocks? What's going on here? Surely after such a fantastic fiscal year 2026 and what appears will be a really, really great start to fiscal year 2027, investors are just being dumb selling this off again, right?

I don't know, Nick, maybe they're not being so dumb. Maybe there's some things we need to consider. There's a cycle. Even though it's a longer cycle, memory companies, including Sandisk, are still cyclical, and Yeah, as all businesses are, it's about figuring out the length of the cycle.

HBF is also still in the future. It's not part of the story just yet for Sandisk, and there is new competition. Yangtze Memory in China is expanding. SK Hynix is planning for an IPO for its Solidigm subsidiary, which was part of Intel, and of course, stocks go up, stocks go down.

Normal volatility applies even for Sandisk. Yeah. We've been talking about this one since the beginning.