Key Points
- Google’s TurboQuant storage algorithm is anticipated to significantly lessen the memory demands associated with AI applications.
- Following this announcement, Sandisk’s shares have declined, presenting an enticing opportunity for potential investors.
- Interestingly, Sandisk may stand to benefit from Google’s algorithm, potentially maintaining its remarkable growth trajectory.
Alphabet (NASDAQ: GOOG / NASDAQ: GOOGL) has consistently strived to innovate within the realm of artificial intelligence (AI).
The conglomerate is not only leveraging AI technologies across its advertising and cloud computing platforms to enhance user engagement and bolster returns for advertisers, but it is also advancing its hardware capabilities.
Specifically, Google is actively pursuing strategies to minimize AI computing costs by developing its own AI processors, thereby diminishing its dependence on costly Nvidia hardware.
Recently, it appears that the “Magnificent Seven” stalwart has achieved a pivotal advancement that could drastically lower computing costs.
Addressing a Critical Bottleneck in AI Infrastructure
In recent years, hyperscalers, AI firms, and numerous data center operators have been making substantial investments in cloud infrastructure.
However, surging demand for AI computing capabilities has surpassed the production capacities of hardware manufacturers, resulting in shortages of various critical chip types.
Memory stands out as one such pivotal resource; the demand has outstripped current supplies by a significant margin.
This escalation is understandable: a plethora of computer memory, specifically dynamic random-access memory, is essential for AI data centers, enabling high-end parallel processors to swiftly access extensive datasets for running AI tasks.
AI accelerator chips now incorporate specialized high-bandwidth memory (HBM) chips, and the production of HBM necessitates three times the wafer capacity of traditional DRAM chips.
The booming need for HBM has consequently exacerbated supply shortages within the DRAM market, a situation projected to endure for a minimum of the next three years.
This predicament has precipitated a notable surge in DRAM prices.
Simultaneously, the training and inference requirements of AI models are contributing to a substantial uptick in NAND flash storage demand.
According to MarketsandMarkets, the AI-centric storage market could see its value surge by nearly 800% from 2025 to 2035. Analogous to the DRAM sphere, NAND flash is similarly grappling with a supply shortfall.
Nonetheless, Google asserts that its TurboQuant technology could diminish the memory required for training large language models (LLMs) by “at least a factor of six,” as reported by Bloomberg.
While the timeline for Google’s deployment of this algorithm remains uncertain, the announcement has adversely impacted Sandisk’s shares (NASDAQ: SNDK).
Sandisk specializes in NAND flash storage solutions employed across a multitude of platforms, including smartphones, personal computers, gaming consoles, and data centers.
Its revenue trajectory has accelerated rapidly owing to the NAND flash supply crunch, fueled by soaring demand from AI data centers.
Investor concerns, however, stem from the possibility that Google’s new technology could hinder Sandisk’s business, potentially triggering a decline in memory prices and eroding margins. However, those divesting from Sandisk may be mistaken.
Google’s Storage Algorithm: A Potential Catalyst for Sandisk
Morgan Stanley analyst Shawn Kim suggests that a potential dip in memory prices could be advantageous for Sandisk.
He posits that lower memory costs may amplify AI consumption, enabling companies to offer more affordable AI solutions. He cites the Jevons Paradox, indicating that reduced resource costs lead to heightened consumption.
This concept regained prominence last year following DeepSeek’s introduction of a cost-effective AI model, which adversely affected Nvidia’s stock. Since then, Nvidia has concentrated on curbing AI compute and inference costs, while still experiencing robust demand for its products.
Sandisk might encounter a similar trajectory if Google’s software accomplishes its objectives. With continuous increases in AI adoption anticipated, driven by the productivity enhancements the technology can foster, a notable shift is underway.
For instance, AI utilization in U.S. businesses is projected to rise to 22.1% by July, up from 18.2% in January, according to the U.S. Census Bureau.
Long-term projections indicate that AI adoption will continue its upward trajectory; IDC forecasts that each dollar spent on AI services could yield $4.90 in value. Thus, making the hardware needed for AI smoother to acquire should catalyze quicker adoption, benefiting Sandisk in the long run.
This is precisely why investing in this AI stock could prove prudent in light of its recent price drop. The company has been expanding at a remarkable pace, with earnings projected to leap from $2.99 per share in the prior fiscal year to $40.27 in the current one. Even more promising, the bottom line is forecasted to more than double in the following fiscal period.
Admittedly, the aforementioned chart anticipates a decline in Sandisk’s earnings after a few years, yet this may not be the reality given the robust demand for storage.
Indeed, major smartphone manufacturers such as Apple and Huawei are reportedly integrating additional storage into their devices to accommodate AI workloads, despite the ongoing supply constraints.
Should availability increase due to the technological breakthrough heralded by Google, Sandisk will be better positioned to cater to the growing memory requirements of smartphone and PC producers, sectors currently experiencing supply shortages.
This could set the stage for sustained earnings growth, potentially allowing Sandisk to exceed analysts’ expectations in the long term.
This is why acquiring this tech stock while trading at a mere 18 times expected forward earnings—compared to the S&P 500 index’s forward earnings multiple of 20.4—could be an astute investment choice. Sandisk presents a compelling valuation in light of its exceptional earnings growth prospects.
Even assuming earnings decline post-peak to $77.20 per share, if shares trade in line with the S&P 500 index’s average forward earnings multiple at that juncture, the stock price could reach approximately $1,575.
Such a projection indicates a potential tripling of current valuations, underscoring considerable multibagger potential for enterprising investors.
Should You Acquire Sandisk Stock Now?
Before making a purchase of Sandisk stock, it’s crucial to contemplate:
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