BofA starts Sandisk at Buy on margin upside, NAND recovery prospects
Sandisk's shares were up 5% at $46.55. BofA's $61 price target implies more than a 30% upside.
The brokerage cited several tailwinds behind its bullish view, including a more favorable supply-demand balance in the NAND market, the potential for operating leverage as pricing improves, and Sandisk's exposure to relatively resilient end markets.
Sandisk, a major developer of NAND-based data storage devices, has also benefited from a joint venture with Japan's Kioxia, which helps share rising capital expenditures in an industry where annual costs have soared to as much as $30 billion. That structure, along with conservative production management, has made Sandisk's margins more stable in downturns, the brokerage said.
While eSSD adoption is still growing, accounting for only 15% of revenue in the second half of 2024, the note flagged long-term margin and valuation improvement if pricing trends firm up across the industry.
Still, the firm warned of several risks to its thesis, including heightened price competition from Chinese rival YMTC, the fragmented nature of the NAND market, and the sector's vulnerability to economic cycles and capex volatility.
Despite these challenges, the brokerage said Sandisk's positioning and valuation leave room for upside as industry fundamentals stabilize.
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