Sandisk Jumped 22% the Day After Micron's Last Report. Micron Reports Again Wednesday.

Key Points

• Micron's NAND flash sales almost doubled from the prior quarter in its fiscal third quarter, to $9.9 billion.
• Sandisk guided for an adjusted gross margin of 83% to 85% this quarter, versus 84.6% last quarter.
• Sandisk gave back its entire post-report jump within a week.
• 10 stocks we like better than Sandisk ›

Sandisk (NASDAQ:SNDK) stock climbed 22% on June 25. The flash memory company didnt reportanything that day.

Micron Technology (NASDAQ:MU) had reported its fiscal third-quarter results after the market closed the day before, and Micron's own shares climbed around 16%.

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Why would Sandisk move more than the company that reported? Micron's report gave an early, detailed look at what memory makers were charging for NAND flash (the chips that hold data in phones, PCs, and data center drives). And everything Sandisk sells is based on NAND.

Micron reports again on Wednesday, Sept. 30, with its conference call set for after the market closes. This time, Sandisk goes into the report at around $1,688 as of this writing, about 28% under the $2,354 peak it hit in June.

Shares were off about 5% on Monday, after OpenAI said it had paused training its most capable artificial intelligence (AI) models.

Image source: The Motley Fool.

Micron's NAND news mattered more to Sandisk

Most of Micron's business is DRAM, the memory that works with processors. NAND was just 24% of Micron's revenue in the three months ended May 28 (its fiscal third quarter).

But that slice carried the news Sandisk investors cared about. Showing how fast flash prices were climbing, Micron's NAND sales rose 99% sequentially to $9.9 billion. Average selling prices jumped in the mid-80% range, while bit shipments (the amount of memory sold) grew just a mid-single-digit percentage. That followed an 82% sequential increase in fiscal Q2, when NAND prices rose in the high-70% range.

Simply put, flash price gains kept accelerating that spring. And investors heard that news around six weeks before Sandisk reported its own fiscal fourth quarter on Aug. 5.

Sandisk's report backed it up. Revenue in the quarter ended July 3 climbed 51% sequentially to $8.97 billion, and it rose 372% year over year.

Only around a third of the sequential gain came from shipping more flash. Higher prices did the rest.

But the June jump didn't last. Sandisk closed at $2,335 on June 25 and at $1,745 on July 2 -- below where it sat before Micron reported.

Overlapping quarters

Micron's fiscal fourth quarter was 14 weeks and ended in early September, so it covers the summer months of June to August.

Sandisk's current quarter started on July 4. That means Micron's figures span around two months of it, and Sandisk probably wont reportthose months itself until later this fall.

Sandisk has already signaled slower growth. Management guided for fiscal first-quarter revenue of $10.3 billion to $10.8 billion, around 15% to 20% above the fiscal fourth quarter. It also guided for a non-GAAP (adjusted) gross margin of 83% to 85%, versus 84.6% last quarter.

Revenue still growing while the margin stays flat suggests Sandisk expects price gains to slow considerably from the spring's pace. Micron's report on Wednesday gives an early outside check on that.

What matters most for Sandisk on Wednesday?

I'd say the most helpful figure is how much Micron's NAND prices climbed in its fiscal fourth quarter. After two straight quarters of increases over 75%, a far smaller gain would still be a gain. But a big slowdown might signal the pricing behind Sandisk's 84.6% gross margin is leveling out.

Micron's data center drive business matters nearly as much. Its data center solid-state drive (SSD) revenue passed $5 billion in fiscal Q3, more than doubling from the prior quarter. It's the same market behind Sandisk's fastest-growing business, where revenue climbed 103% sequentially in the fiscal fourth quarter to around $3 billion, or about a third of all sales.

In June, Micron also said it expected supply to stay tight against demand for both DRAM and NAND past calendar 2027, with NAND supply squeezed more as suppliers shift cleanroom space from NAND to DRAM. Any softening of that outlook could hit Sandisk harder than Micron. After all, Sandisk has no DRAM business to fall back on.

Of course, judging from Sandisk's valuation, investors already seem skeptical that current flash prices will last. At around $1,688, it sells for about 23 times the past year's earnings.

Annualize the $44 to $46 of adjusted earnings per share management guided for this quarter alone, and the stock trades at under 10 times earnings.

In the end, one report from Micron won't show how long flash prices stay this high. But its NAND numbers span most of the quarter Sandisk is now finishing, and in June, that was enough to move Sandisk more than Micron itself. This time, I'd follow what Micron says about NAND prices more closely than how either stock trades the next day.

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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.