Shares of Sandisk Corporation (NASDAQ:SNDK) dropped 12.4% in early trading Wednesday, sliding to $1,540.51, as investors digested news that a major customer was exploring ways to hedge against potential declines in memory and storage prices. The decline outpaced losses at peers Micron Technology, Inc. (NASDAQ:MU) and Western Digital Corporation (NASDAQ:WDC), which fell 8.4% and 8.9%, respectively.
CoreWeave, Inc. (NASDAQ:CRWV), which has a long-term supply agreement with Sandisk, is reportedly in early-stage discussions about using put options and other derivatives to protect itself if chip prices fall. According to a source cited by Reuters, no trades have been executed yet, but the mere consideration has rattled investors who had bet on Sandisk's strategy of locking in price floors with customers to smooth out the notorious boom-bust cycles of the NAND flash market.
Sandisk's April quarterly filing revealed $41.6 billion in remaining performance obligations (RPO), of which $41.2 billion, or 99%, had not yet been billed. Only about 15% of that total, roughly $6.24 billion, is expected to be recognized as revenue over the next 12 months. The contract backlog represents about 2.2 times Sandisk's projected fiscal 2026 revenue of approximately $19.28 billion, based on reported results and guidance. Two additional contracts signed after the quarter ended are not included in these figures.
The company's price-to-earnings ratio of 53.6 times is more than double that of Micron (20.4 times) and Western Digital (30.7 times), reflecting the premium the market has placed on Sandisk's contract-based model. However, Wednesday's selloff suggests that investors are now questioning the durability of those earnings if customers begin to hedge or renegotiate terms.
Despite the jitters, some analysts remain bullish. Evercore's Amit Daryanani raised his price target on Sandisk to $3,100 from $1,400, arguing that the market still "underappreciates the durability" of Sandisk's earnings and free cash flow. Citigroup maintained a $2,500 target. Both targets imply significant upside from current levels—101% and 62%, respectively.
Sandisk's most recent quarterly results showed revenue of $5.95 billion and gross margin of 78.4%, up sharply from 22.5% a year ago, driven by higher prices and increased data center sales. CEO David Goeckeler has emphasized the company's goal of breaking the boom-bust cycle, telling Reuters in April, "We want consistent, predictable economics."
However, the company's own filings acknowledge risks: if a customer defaults, guarantees may not cover lost sales, and if Sandisk fails to deliver, it could face price cuts, volume reductions, damages, or early termination of deals. The top 10 customers accounted for 46% of third-quarter revenue, with one buyer representing more than 10%.
CoreWeave's potential hedge does not signal an imminent default, but it highlights the financial pressures buyers may face if memory prices fall below contracted floors. If executed, the hedge would allow CoreWeave to maintain its purchase commitments while offsetting potential losses from declining chip prices.
Investors will be watching Sandisk's earnings report on August 5 and its investor day on August 13 for updates on the contract book, the mix of fixed versus variable pricing, and any changes in customer concentration. The memory cycle could still tighten for longer than expected, as new fabrication plants are not expected to reach full production until early 2028.
