Why SanDisk shares are tumbling and what investors should know

Sandisk (NASDAQ: SNDK) has been a breakout success since it went public in February 2025, following its spinoff from Western Digital. The returns for this flash memory storage drive manufacturer for artificial intelligence (AI) accelerators, quite frankly, have been staggering.

After its IPO in February 2025, it began trading at $36 per share on Feb. 13, 2025. Roughly 17 months later, on July 20, it is trading at about $1,420 per share. That's a total return of roughly 3,844%, including a 470% year-to-date return.

What's even more shocking than that is that this return includes a massive sell-off in recent weeks.

Sandisk stock had reached a closing high of $2,335 per share on June 25. At that point, Sandisk stock had a total return of almost 6,400% since its market debut. It was also up 885% year to date as of June 25. But since that June 25 high, it has dropped about 39% or nearly $1,000 per share.

So, what caused the sell-off, and is Sandisk still a buy, or is this the start of a long drawdown?

Staggering revenue growth

The sharp decline in Sandisk's stock price is not due to any hiccup in its insane growth trajectory. Last quarter, its fiscal third quarter, revenue was up 97% from the previous quarter and 251% year over year. Earnings were $23.03 per share, up 347% sequentially and up from a $13.33 per share net loss a year ago.

The surge is due to extreme demand for memory storage drives to handle the flood of AI compute being unleashed in data centers and by hyperscalers. And because demand is so high, Sandisk has been able to increase prices, further fueling revenue gains.

For Q4 2026, Sandisk anticipates $7.75 billion to $8.25 billion in revenue, up 30% to 38% from Q3. Further, its gross margin is anticipated to increase from 78.4% in Q3 to 78.9%-80.9% in Q4.It is already sold out of its AI storage drives for 2026 and has at least $42 billion in backlog as of last quarter, so growth does not appear to be slowing down.

Is Sandisk a buy after the sell-off?

Sandisk's rising valuation and broader concerns about unsustainably high stock prices among chipmakers and memory stocks have been catalysts for the recent sell-off. It has prompted investors to cash in on the huge profits they have accrued, which has brought down the share prices of Sandisk and other memory stocks.

Sandisk's price-to-earnings (P/E) ratio rose to 45, the highest since it went public, again, in 2025. (Sandisk had been a public company from 1995 until 2016, when Western Digital bought it.) And its forward P/E rose to 21, which is higher, but still relatively cheap.

I really look at this sell-off as a reset for Sandisk. With Q4 earnings coming up on Aug. 5, investors can expect another blowout quarter and a robust outlook, and I wouldn't be surprised to see the stock rise again in the second half after this dip.

Wall Street agrees, as 77% of analysts rate it a buy with a median price target of $2,500, suggesting 74% upside.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Western Digital. The Motley Fool has a disclosure policy.