Key Points
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Sandisk and Micron have generated significant growth in their most recent quarters due to soaring demand for their products.
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While Sandisk is the smaller of the two companies, its growth rate has been more impressive.
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Despite their surges in value, their valuations don’t look extreme, but that doesn’t mean these stocks come without risk.
Investing in tech and artificial intelligence (AI) has been the hottest theme in the markets in the past few years. Recently, investors have specifically pivoted to memory and storage stocks, as demand for those types of products has been through the roof as a result of AI. And in doing so, shares of both Sandisk (NASDAQ: SNDK) and Micron Technology (NASDAQ: MU) have been taking off.
Within the past 12 months, Micron’s stock has risen by more than 600%, while Sandisk has soared by over 3,500%. There’s plenty of excitement around these stocks, and while there are similarities, there are also important differences to consider. Which of these tech stocks is the better buy today?
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The key differences between Sandisk and Micron
While both of these companies are focused on providing businesses with memory and storage solutions, there are key differences that set them apart from one another. Sandisk is focused on flash memory, specifically NAND memory that is used in portable devices, such as SD cards and USB drives. It’s also more focused on the consumer market.
Micron, meanwhile, sells both NAND memory and DRAM, which is the memory that a computer’s processor uses over the course of its day-to-day operations. Micron has also recently announced it would be moving away from its consumer business and instead focusing on enterprise customers and the opportunities related to AI data centers, which can generate better margins.
Sandisk is smaller in size, but its growth has been faster
On April 30, Sandisk reported its most recent quarterly results for the period ending April 3. Revenue came in at just under $6 billion, up 251% year over year. Its top line had also roughly doubled from just the previous quarter.
By comparison, Micron, which reported earnings back in March, for the period ending Feb. 26, generated nearly $24 billion in sales in its most recent quarter. Its growth rate was still highly impressive, rising 196% year over year, but it was technically slower than Micron’s. However, it’s also much more difficult for a company of Micron’s size to achieve that kind of growth than it is for Sandisk.
Which stock is more expensive?
When two stocks surge in value as much as Sandisk and Micron have, the inevitable worry is that their valuations have gotten out of control. Micron’s market cap of $650 billion makes it the largest tech stock that’s not part of the trillion-dollar club. Sandisk, meanwhile, is worth around $185 billion. But to gauge how truly expensive these stocks are, it’s important to consider their prices with respect to sales and profits.
Sandisk is trading at 43 times its trailing earnings, and that drops to 19 when based on analyst projections for the year ahead. It’s also trading at a little over 14 times trailing revenue.
With Micron, its valuation looks a bit lighter, as its earnings multiple is only 27, and that falls to less than six on a forward earnings basis. And it’s trading at 11 times its sales.
Which stock is the better buy today?
Both of these stocks come with risks due to their incredibly hot rallies over the past 12 months and the potential for memory prices to decline in the future, which could significantly weigh on their growth prospects. While there is a shortage of these products today, when supply catches up to demand, or tech companies slow their spending, prices can drop drastically.
With a more attractive valuation and a focus on enterprise customers, Micron, however, looks to be the better option today. It appears to have greater potential upside, although it’s by no means a risk-free investment, and it can be volatile. Whether you’re investing in one or both of these stocks, you should tread carefully, because while both of them are hot right now, that doesn’t mean things will stay that way as the year goes on.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
