What Sandisk’s play on surging memory prices means for our tech stocks
Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch, an actionable afternoon update just in time for the final hour of trading on Wall Street. It’s a new month, but the situation is much the same for the S&P 500. The broad index is heading for another record close on Friday after wrapping up its best month since November 2020 on Thursday. Oil prices fell on Friday after Iran responded to Washington’s latest changes to a draft agreement to end the Iran war. President Donald Trump said he was “not happy” about this, which helps explain why crude oil has bounced back from session lows. Still, as of 14:00 on Friday, the US oil benchmark WTI was down more than 3%, to about $101.50 per barrel. The difference in the performance of the club’s portfolio in April reinforces our belief that there are now essentially two markets; data center stocks and everything else. On the “winning” side were the AI and data center-related names that powered much of the market’s rise. Arm has gained nearly 40% in the past month, while Broadcom and Alphabet are up more than 30%. A resurgent Amazon wasn’t far behind, and electrical equipment supplier Eaton and glass maker Corning also posted notable gains, underscoring the power connected to everything leveraging AI architecture. Cardinal Health and Johnson & Johnson, on the other hand, were among the laggards, reflecting the market’s disinterest in most healthcare names. Nike was our worst-performing stock in April, but most of those losses came at the beginning of the month following a disappointing earnings report on the night of March 31. After closing at $42.62 on April 10, the stock rose slightly and traded above $44 on Friday. Sky-high memory prices were a big theme during this busy earnings week. All five reported megacap tech companies are struggling with AI-driven price growth. Also reported by some memory companies themselves (Western Digital and Sandisk). On Wednesday evening, Meta directly cited the increase in memory prices as the main reason for the increased capex guidance. Microsoft also said rising component costs were responsible for about $25 billion of its $190 billion capital expenditure guidance in calendar 2026. Then on Thursday evening, Apple told investors to expect the headwinds in memory prices to be with us for a while longer. While company investors are hurt by memory prices, we should pay attention to what we hear from Sandisk and others. They are the ones actually responsible for the supply (or lack thereof in this case). Looking at SanDisk’s Thursday night earnings, it appears its customers are reacting to the increase. Sandisk said it is seeing increased interest in multi-year supply agreements, with five deals signed to date valued at more than $11 billion. Commitments come with locked purchase commitments and a mix of fixed and variable pricing. The longest of these commitments is five years. From Sandisk’s perspective, these deals serve to ensure consistent demand and help guard against the boom-and-bust cycles that have historically plagued memory creators. This is a major shift in business strategy. SanDisk did not name the five customers it has supply agreements with, but the CFO called them “very significant customers.” So we can assume that these customers have deep pockets and some may even have Club names. What do these supply agreements mean for signatories? For starters, they serve to ensure a consistent supply and therefore help ensure that little or no sales occur due to lack of supply. The risk with these deals is that customers will still be financially strapped if demand declines. This shows that memory makers have a lot of power right now. But we’re not too worried. Of course, any company spending tens of billions of dollars on AI hardware will need to be compensated for it. However, we think it has done a good job of forecasting the future supply needs of all Club holdings that may have signed one of these agreements. On the contrary, they have proven to be too conservative in recent years and left revenue on the table. One final thought: While these deals are multi-year in nature, it’s important to keep in mind the mix of fixed and variable pricing. This means that commitments should help with supply and therefore sales. However, this also means that customers will still be somewhat exposed to price fluctuations resulting from demand dynamics. Therefore, we expect margin performance to remain under close scrutiny in the coming quarters and perhaps beyond. The club will report the names of Eaton, Arm Holdings and Dupont next week. Eaton has a history of selling post-earnings, so we keep that in mind. For Arm, we expect CEO Rene Haas to note continued strength in CPU orders, but with stocks up more than 100% since its last report, the bar is high and it could take a lot to get shares meaningfully higher. Corning will also host an investor day on Wednesday, and we still think there could be further upside. We will see previews of all four Club names in next week’s column on Sunday. Other companies due to report next week include Palantir, Vertex Pharmaceuticals, AMD, Novo Nordisk, Disney, CVS and Gilead Sciences. We’re also keeping a close eye on the April employment report due Friday, which is a key force in the labor market and could help shape expectations for the Fed’s next move. (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT GUARANTEE IS MADE.
