What Sandisk’s play on rising memory prices means for our tech stock
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch – an afternoon update that can work, during the last hour of trading on Wall Street. It’s a new month, but so is the S & P 500. The broad index is on track for another record close on Friday after wrapping up its best month since November 2020 on Thursday. Oil prices fell on Friday after Iran reportedly responded to Washington’s latest changes to the draft deal to end the Iran war. President Donald Trump said he was “not satisfied” with it, which helps explain why crude pulled out of its session low. Still, as of 2 pm ET on Friday, the benchmark US oil WTI was down more than 3%, to around $101.50 a barrel. The divergence in performance across the group’s portfolios in April reinforces our belief that there are actually two markets right now – data center stocks and everything else. On the “win” side were AI and data center-related terms that powered much of the market rally. Arm is up nearly 40% in the past month, while Broadcom and Alphabet each jumped more than 30%. A resurgent Amazon wasn’t far behind, and appliance supplier Eaton and glassmaker Corning also posted outstanding gains, emphasizing the power inherent in anything that benefits from an AI buildout. On the other hand, Cardinal Health and Johnson & Johnson were among the losers, reflecting the market’s lack of interest in many healthcare names. Nike was our worst-performing stock in April, although most of those losses came at the beginning of the month in response to a disappointing earnings report on the night of March 31. After closing at $42.62 on April 10, the stock has slowed and traded above $44 on Friday. High-end memory prices were a big theme this earnings week. All five megacap tech companies reported against AI-driven price increases. Also, some of the memory companies themselves reported (Western Digital and Sandisk). On Wednesday evening, Meta specifically pointed to rising memory prices as the main reason for its capital expenditure guidance. Microsoft also said rising component costs are responsible for $25 billion of their calendar 2026 capex guidance of $190 billion. Then on Thursday evening, Apple told investors that they expect the price of memory to be with us for a while. As investors in companies hurt by memory prices, we should pay attention to what we hear about the likes of Sandisk and others. They are actually responsible for the provision (or, in this case, the lack thereof). If you look at SanDisk’s earnings call from Thursday night, its customers are reacting to this operation. Sandisk said it is seeing growing interest in multi-year supply agreements, with five signed so far worth more than $11 billion. Bonds come with lock-in purchase commitments and a combination of fixed and variable rates. The longest period of all these obligations is five years. From Sandisk’s vantage point, these deals work to ensure steady demand and help protect against the boom-and-bust cycles that have historically plagued memory makers. It’s a big change in business strategy. SanDisk did not name the five customers with supply agreements, but the CFO called them “very meaningful customers.” Therefore, we can assume that these customers have deep pockets, and some of them may have group names. What do these deals mean for signatories? First, they work to ensure consistent supply and, secondly, help them ensure that few or no sales occur due to lack of supply. The risk of these deals is that if demand slows down, customers will still be involved in the financing. It goes to show that memory makers have a lot going on right now. However, we are not too worried. Of course, any company spending tens of billions of dollars on AI hardware will need to show a return. But we think that all the companies that manage the Club that might sign one of these agreements are doing a good job of predicting future supply needs. If anything, they have appeared to be more frugal in recent years and are leaving income on the table. A final thought: Although these agreements are multi-year in nature, the combination of fixed and variable rates is important to remember. This means that bonds should help supply and, by extension, sell. But it also means that customers will still have exposure to price fluctuations caused by fluctuations in demand. For that reason, expect margin performance to remain under scrutiny in the coming quarters, perhaps, and beyond. Group names Eaton, Arm Holdings and Dupont report next week. Eaton has a history of selling at a profit after acquisition, so that’s something we keep in mind. At Arm, we expect CEO Rene Haas to highlight continued strength in CPU orders, but with the stock up more than 100% since its last report, the bar is high and it may take a lot to push shares meaningfully higher. Corning is also hosting an investor day on Wednesday, and we think there will be a lot more to come. We’ll have a preview of all four Club names in our next week’s column on Sunday. Other companies reporting next week include Palantir , Vertex Pharmaceuticals , AMD , Novo Nordisk , Disney , CVS , and Gilead Sciences . We’re also keeping a close eye on the April jobs report due Friday, which is a key read on labor market strength and could help shape expectations for the Fed’s next move. (See here for a full list of stocks from Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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