SanDisk stock is in a bull run — but RSI says a pullback may be near

Sandisk's stock price has gone parabolic this year, becoming the top gainer in the S&P 500 and Nasdaq 100 indices. It has soared by over 4,300% in the last 12 months and by 540% this year. This rally has been driven by the ongoing memory chip shortage amid the AI boom. Stil, there is a risk that the stock will pull back in the near term.

SanDisk CEO touted an inflection point in its business

Companies in the memory chip industry are all firing on all cylinders as the AI boom accelerates. In addition to Sandisk stock, companies like Micron, Seagate Technologies, and Western Digital have all surged to their record highs this year. 

The same is happening internationally, with the SK Hynix stock surging to a record high this year. Other top names like Samsung and Kioxia are thriving, a trend that analysts expect will continue.

SanDisk stock has beaten all the other memory chip companies, with the management touting its company being at an inflection point. Its rally has brought its market capitalization to over $230 billion. 

The company is doing well because of the ongoing memory chip shortage that has pushed prices higher. Indeed, some chip prices have more than doubled in the past few months, and manufacturers are not keen on dramatically boosting production. 

The soaring demand is expected to continue in the foreseeable future as big-tech companies boost their capital expenditures. In the recent earning season, these companies pledged to spend over $725 billion in capex from $675 billion in the same period last year. These firms pointed to the soaring chip prices for the company.

SanDisk's revenue growth is accelerating

The most recent results revealed that its revenue jumped to $5.9 billion in the fiscal third quarter, up by 97% from the previous one. It soared by 250% YoY, making it one of the fastest-growing companies in the United States. 

Most of the revenue came from the Edge segment, which made over $3.6 billion, followed by data center, which made $1.46 billion. The consumer segment slowed to $802 million during the quarter.

Most notably, the management guided that its business would continue the growth trajectory. They expect that the fourth-quarter revenue will be between $7.75 billion and $8.25 billion, with its gross margins hitting 80.9%. Chances are that the real numbers will be much better than expected.

Technicals present potential Sandisk stock risks

Still, there are some potential risks that the company is facing today. For example, in a recent note, Michael Burry warned that the industry was demonstrating some bubble-like behavior. He compared it to the peaks of the dot-com bubble.

Still, valuation multiples show that Sandisk is not all that overvalued as its forward P/E ratio stands at 24, slightly higher than the S&P 500 Index’s average of 21. Its forward PEG ratio of 0.09 is also much lower than other companies. 

Another potential risk is that memory chips may start falling this year as production increases. Historically, the industry is known for its boom and bust cycles. 

SNDK stock chart | Source: TradingView

Technicals suggest that the SNDK stock price has become highly overbought, with the Relative Strength Index (RSI) soaring to 80. Also, it has diverged further from its moving averages. In this, the stock trades at $1,562, while the 100-day moving average is at $705. This is a sign that the stock may go through mean reversion, a situation where a stock moves back to the historical averages. 

Therefore, while the Sandisk stock rally may continue in the foreseeable future, there is also a risk that it will drop sharply in the near term. If this happens, it may drop and retest the key support level at $1,000.