Short-selling firm Citron publicly bearish on SanDisk (SNDK), memory valuation severely mistaken

Short-selling firm Citron Research recently announced that it has established a short position in SanDisk (SNDK), believing that the NAND memory industry is a typical economic cycle. Currently, it is approaching the cyclical peak, but the market is pricing it based on high-growth tech stock valuation logic, significantly increasing the risk. Citron pointed out that the memory industry has historically experienced reversals after periods of prosperity in 2008, 2012, and 2018, stating, “The cycle never disappears; it only peaks again.” After Citron’s bearish stance, SanDisk’s stock once fell to 612.9, with a closing price of 640.24.

However, JMicron CEO Pan Jiancheng previously stated in an interview that the key reason AI breaks the memory cycle is that AI’s bottleneck is not computing power but memory/storage. AI requires大量 DRAM during calculations, and companies are forced to buy more GPUs to meet DRAM demands. Currently, the approach is to use NAND Flash memory to solve the problem of buying GPUs for DRAM.

Recommended reading: What changes has NVIDIA Vera Rubin brought? Analyzing the memory war era: SK Hynix, Samsung, Micron, SanDisk

Unlike past memory cycles, AI’s demand for DRAM is endless. Moreover, after AI moves from training to inference, the data generated by inference also needs to be stored. Cloud providers’ future revenue is highly correlated with storage space; more usage (revenue) means more storage is needed.

Core point 1: NAND is a commoditized industry lacking a moat

Citron believes the market is comparing SanDisk to NVIDIA, but the two are fundamentally different. NVIDIA has an ecosystem of hardware and software and technological barriers, while SanDisk mainly sells highly homogeneous NAND products.

Memory prices and profits are highly affected by supply and demand cycles

The report bluntly states: “NVIDIA has a moat, SanDisk sells commodities.” This means that once supply rebounds or demand weakens, gross margins and stock prices could fall rapidly, making it difficult to sustain current high valuations.

Core point 2: Competition pressure from Samsung will intensify

Citron pointed out that Samsung has maintained a consistent strategy over the past 30 years:

• Maintaining disciplined supply during economic peaks
• Enjoying high gross margins as a pure NAND manufacturer
• Then expanding production or adjusting product strategies to gain market share and lower prices

This time, Samsung has stated it will focus on high-end markets with over 50% gross margin, introducing advanced processes into high-end SSDs, directly competing with SanDisk’s core products. Currently, market supply is tight, partly due to yield issues in other Samsung product lines. However, this problem is temporary; once resolved, supply could quickly release. Citron warns that potential capacity could even double the peak in 2018, and the current “shortage” may just be a temporary supply illusion.

Core point 3: Western Digital reduces holdings, signaling a cycle warning

The report also mentioned that SanDisk’s former parent company, Western Digital, has recently sold a significant portion of its holdings. Citron interprets this as: long-term investors familiar with industry cycles are choosing to exit early at high prices rather than waiting for a downturn, indicating internal concern about the industry’s weakening outlook.

JMicron CEO: AI moving from training to inference means endless storage demand

Since the beginning of the year, SNDK’s stock price has risen sharply, with a cumulative increase exceeding the market and industry averages over the past year. The market is rallying on the demand from AI and data centers. However, Citron believes that SanDisk is essentially just a part of the AI infrastructure supply chain, lacking key technological monopoly or platform position. If NAND industry conditions decline, valuations could also be corrected.

Citron uses a hockey puck analogy, stating that shorting SNDK is like “sliding toward where the hockey puck will arrive.” Before the memory cycle normalizes, stock prices often already reflect weakening conditions in advance.

However, JMicron CEO Pan Jiancheng previously stated that AI’s breaking of the memory cycle is mainly because AI’s bottleneck is not computing power but memory/storage. AI requires大量 DRAM during calculations, and companies are forced to buy more GPUs to meet DRAM demands. Currently, the approach is to use NAND Flash memory to address the GPU demand driven by DRAM.

Unlike past memory cycles, AI’s demand for DRAM is endless. Additionally, after AI moves from training to inference, the data generated also needs to be stored. Future revenue for cloud providers is highly correlated with storage space; more usage (income) means more storage is needed.

(UMC has spent seven years and hundreds of billions to catch up with the biggest shortage wave in its lifetime. What’s next for Taiwan’s memory manufacturers?)

It is normal for short-sellers and industry players to have differing views, and the market will provide the answer. On the 24th, SanDisk opened at $682.5, and after Citron’s short signal, it briefly fell to $612.9. However, the closing price was $640.24, indicating market disagreement.

This article about Citron’s public bearish outlook on SanDisk (SNDK) and the severe misvaluation of memory stocks was first published on Chain News ABMedia.