SanDisk, Western Digital Face Sell-Off Despite Strong Performance... Is Money Flowing to Nvidia?

▲ US stock market, Wall Street, semiconductor, artificial intelligence (AI), bear market / AI generated image

SanDisk (SNDK) and Western Digital (WDC) faced intense selling pressure despite strong performance. Analysis suggests that to meet heightened expectations, performance must not only surpass market forecasts but also significantly raise future outlooks.

According to StockTwits, a financial market specialized media outlet, on August 7 (local time), SanDisk and Western Digital's stock prices fell sharply on Wednesday and Thursday, around their earnings announcements this week. SanDisk rose 4% on a weekly basis, but Western Digital fell 17%. Dave Mazza, CEO of Roundhill, stated, "Outperforming market expectations and raising guidance is not enough." He explained that investors' expectations have recently become excessively high, leading to a reassessment of memory industry conditions and long-term customer contracts.

Reduced leverage also fueled the sell-off. The outstanding balance of credit transactions by Korean individual investors decreased from a June peak of 38 trillion won ($26.8 billion) to 27 trillion won, returning to early-year levels. Mazza remarked, "It was unbelievable how much leverage had built up in the market," describing the recent correction as "a shakeout and repositioning." Money did not exit the entire memory sector. $10.4 billion flowed into the Roundhill Memory ETF (DRAM) from the market's peak to its trough.

Semiconductor funds are shifting back to Nvidia (NVDA). Mazza explained that while memory stocks had been absorbing semiconductor investment capital, Nvidia had relatively lagged. He cited Nvidia's earnings announcement scheduled for August 26 as one of the most crucial events in the market. He also suggested that new stock supplies from Alphabet, SpaceX, and SK Hynix increased the burden on AI-related stocks across the board.

SanDisk reported adjusted earnings per share of $39.25 and revenue of $8.97 billion, both exceeding market forecasts of $34.51 and $8.39 billion, respectively. Revenue surged by 372%, and data center revenue doubled from the previous quarter to approximately $3 billion. The Q1 revenue outlook was provided between $10.3 billion and $10.8 billion, with the market forecast at $10.62 billion. Expected revenue from SanDisk's eight multi-year contracts totals at least $93.9 billion, though the financially guaranteed amount is $16.5 billion. Morningstar maintained its fair value estimate for SanDisk at $1,000, forecasting that the memory supercycle would peak in early 2028.

Western Digital also reported a 44% increase in revenue to $3.75 billion. Adjusted earnings per share were $3.56, surpassing the market forecast of $3.29. The Q1 outlook also exceeded market expectations with revenue of $4.1 billion and earnings per share of $4. Morningstar described it as "another excellent quarter" but suggested that slowing shipment growth and cautious management remarks might have triggered the sell-off. In a StockTwits survey, 41% of 843 respondents said they would buy SanDisk if it fell, and 18% said they would buy both stocks.

[Article Key Summary]

-SanDisk's stock fluctuated despite performance exceeding market forecasts, while Western Digital fell 17% this week.

-Roundhill CEO assessed that high expectations and reduced leverage exacerbated the memory stock correction, stating, "Outperforming market expectations and raising guidance is not enough."

-As semiconductor investment funds shift back to Nvidia, Nvidia's earnings announcement on August 26 was highlighted as a major market event.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*