SanDisk and Micron are getting cheaper as they rise? Stock prices have surged several times, but Wall Street only gives a 9x PE ratio

The explosive growth in demand for storage chips is upending traditional valuation logic—the higher the stock price, the cheaper SanDisk and Micron are becoming.

SanDisk’s stock price has increased by 482% so far this year, ranking first in the S&P 500, yet its expected price-to-earnings (P/E) ratio has plunged from 23 a few months ago to less than 9.

Micron Technology’s stock price rose 172% over the same period, ranking fifth in the S&P 500, and its expected P/E ratio has also compressed from about 12 in February to less than 9.

By comparison, the overall expected P/E ratio of the S&P 500 is about 21. This anomaly is largely due to analysts upgrading their earnings expectations for the two companies much faster than the rise in their stock prices—over the past 12 months, forecasts for SanDisk’s adjusted EPS in 2027 were raised by nearly 2000%, and Micron’s by 768%. Market bets on the AI infrastructure construction cycle are reshaping the valuation framework for storage stocks, but cyclical risks still linger.

Supply-demand Imbalance Drives Valuation Compression

The logic behind this valuation paradox isn’t complicated: demand for storage chips is steadily surging, but supply shortages are keeping prices high, and upward revisions of profit forecasts are leaving stock price gains far behind.

Kim Forrest, Chief Investment Officer of Bokeh Capital Partners and a holder of Micron shares, commented, "All high-bandwidth memory can command outrageously high prices due to supply and demand. As long as this dynamic persists, I am extremely excited. This is a wonderful situation. The pricing is not excessive because people are buying—and it’s already sold out. Thus, people believe that with current high prices, there could still be even more upside."

Rob Thummel, Senior Portfolio Manager for Tortoise Capital, holds both SanDisk and Micron in the Tortoise AI Infrastructure ETF he manages. He said, "Unless there is a significant change in capital expenditures by hyperscale cloud providers—which we are currently seeing rise, not fall—the demand for storage and memory will continue to grow." The ETF has risen 70% this year, and the Philadelphia Semiconductor Index is up 71% over the same period.

Bulls Bet on Renewed Cycle in AI Infrastructure Construction

The main bullish thesis is that we are still in the early stages of a large-scale buildout cycle for AI infrastructure. The massive consumption of data by AI technology means that demand for storage chips and related products will remain strong for years to come.

Jay Hatfield, CEO of Infrastructure Capital Management, stated, "This is an all-out boom, and we think it’s a mistake to exit now. Valuations provide support for this, which is the condition we require to participate in this type of momentum-driven trade."

Cyclical Risks Cannot Be Ignored

However, low valuations may themselves serve as a warning—they could mean the market is pricing in a peak in profit growth. Storage stocks have historically been highly cyclical: when demand is strong, prices rise and supply expands; once orders slow, oversupply quickly depresses prices and earnings.

Randy Hare, Director of Equity Strategy at Huntington National Bank and a Micron shareholder, pointed out, "You can’t evaluate these types of stocks the same way as those with steady earnings growth. Usually, the best time to buy them is when valuations are high and earnings are weak, because you’re betting on the next earnings upswing. But that’s not intuitive for most investors." He noted that while he remains positive on storage stocks’ upside, he does not recommend chasing at current prices. "I think the easy profits in this stock have already been made, and volatility will increase going forward."

Jed Ellerbroek, Portfolio Manager at Argent Capital Management, avoids storage stocks due to cyclical concerns, stating, "Shortages will eventually lead to oversupply." He believes that given the current scale of capital investment, it may take years for supply to catch up with demand, "but I think it will ultimately happen."

There are recent cases in point: in 2023, Micron reported an adjusted per-share loss of $4.45; in 2022, as profit expectations collapsed, its stock dropped 46%, and then rebounded in 2023 as a new cycle began.

Not All Storage Stocks Get “Cheaper as They Climb”

It’s worth noting that this valuation compression is not seen throughout the storage sector.

Seagate Technology and Western Digital both have forward P/E ratios above 30, a sharp rise from about 20 at the end of March. Both companies focus primarily on hard drives and other storage devices, which are less cyclical than storage chips, so their valuation logic is entirely different.