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Since separating from Western Digital in February 2025, Sandisk (NASDAQ:SNDK) has benefited from soaring demand for data storage, particularly from artificial intelligence (AI) infrastructure.
However, the company's latest announcement has introduced an interesting twist. On Oct. 29, Sandisk announced an 8-for-1 stock split, scheduled to take effect after the market closes on Nov. 19.
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Normally, stock splits generate excitement among investors. But Sandisk stock has actually plunged since the announcement. Between Oct. 29 and Nov. 9, Sandisk fell from $1,330 to $886, a 33% decline.
Let's examine how stock splits work, what happened with other semiconductor companies that split their stock in recent years, and whether Sandisk is worth buying before its upcoming split.
A stock split increases the number of outstanding shares while proportionately reducing their price. For example, an investor holding one Sandisk share worth $800 before the split would subsequently own eight shares worth approximately $100 apiece post-split. The investment would still be worth $800.
As investors can see, stock splits don't create shareholder value, change a company's earnings, or alter its market capitalization. So, why do companies pursue them?
One reason is accessibility. Lower share prices in terms of absolute dollars can make stocks more appealing to retail investors who prefer purchasing whole shares rather than fractional shares. That's precisely what Sandisk wants to accomplish. Management explained that its stock price has appreciated substantially since the Western Digital spinoff, making a split attractive for a broader base of investors and employees participating in the company's stock purchase program.
The announcement accompanied impressive financial results. During its fiscal first quarter of 2027, Sandisk generated $11 billion in revenue, increasing 378% year over year and 23% sequentially. Adjusted earnings per share reached $49.51 per share compared with just $1.22 during the same period last year.
These results reflect robust demand for NAND flash memory, particularly as data centers require more storage capacity. However, Sandisk's post-earnings sell-off suggests investors are becoming more concerned about valuation and the sustainability of memory pricing.
In June 2024, Nvidia (NASDAQ:NVDA) completed a 10-for-1 split after its shares surged alongside demand for its GPUs. Nvidia subsequently experienced prolonged volatility, including a sharp pullback during the summer of 2024. Nevertheless, its shares eventually reached higher levels as revenue and earnings continued expanding.
Broadcom (NASDAQ:AVGO) followed with its own 10-for-1 split in July 2024. Similar to Nvidia, Broadcom benefited from growing AI infrastructure spending, particularly demand for custom accelerators and networking technology. Its stock also experienced fleeting fluctuations after the split before benefiting from continued acceleration in its AI semiconductor business.
I wouldn't be surprised to see Sandisk experience a short-term rebound once its shares begin trading at a lower nominal price. Using the Nov. 9 closing price of $886, the theoretical post-split share price would be around $111, assuming no additional price movement. That's considerably more accessible than a stock trading near $900.
The lower price could attract more investors who previously considered Sandisk too expensive to purchase in whole-share increments. However, increased interest from retail investors doesn't necessarily translate into sustainable stock price appreciation.
Here's where I'd exercise caution: Sandisk's recent financial results have been historic, but the memory industry is also cyclical. Demand for data center storage is growing rapidly, while supply constraints are contributing to higher average selling prices. Those conditions support Sandisk's margins and profitability... for now.
Investors need to understand the difference between a stock becoming cheaper per share and becoming cheaper based on valuation. An 8-for-1 split doesn't reduce Sandisk's price-to-earnings (P/E) ratio. If investors bid up shares after the split, they could ironically end up paying an even higher valuation for a business whose profits are sensitive to memory pricing cycles.
Sandisk could enjoy a brief rally around the time of its split, especially after the recent sell-off. However, given what happened with Nvidia and Broadcom, history suggests the momentum will not be sustainable without continued earnings growth.
Nvidia and Broadcom ultimately rewarded shareholders because their underlying businesses grew, not because dividing their shares magically created value. Sandisk could follow a similar path if demand for its NAND flash storage remains strong. For now, though, I think patience is the more prudent strategy.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Broadcom, Nvidia, and Western Digital. The Motley Fool has a disclosure policy.
History Says This Is What Will Happen to Sandisk Stock After Its 8-for-1 Split was originally published by The Motley Fool
