Why Sandisk's 559% Run Is Missing from Your Tech ETFs

The numbers tell a story of extraordinary performance. From its February 2025 public debut, Sandisk shares climbed 559% through the end of the year, making it the clear winner in the S&P 500. That kind of return is the stuff of legendary investing tales, a pure-play bet on the AI-driven memory boom that has seen NAND flash demand surge. Yet, for the vast majority of investors, this ascent was invisible. The stock's massive run occurred almost entirely outside the reach of major tech ETFs.

The reason is a simple timing mismatch. Sandisk was spun off from Western Digital and returned to public markets in early 2025. Its inclusion in the S&P 500 index came later, in November 2025. This meant the stock's incredible rally unfolded over a shortened period, and more importantly, its weight in the index remains tiny. Even after the pop, it represents just 0.09% of the S&P 500. For a benchmark fund, that's a rounding error. The lag in index rebalancing meant that as the stock soared, the broad market funds simply didn't buy it in meaningful size.

This creates a classic value investor's puzzle. The stock's performance is real and driven by a powerful secular trend-the AI data cycle's insatiable need for storage. But its absence from the ETFs that many investors own means the compounding effect of its success is not being captured by the average market participant. The stock's journey from a legacy brand to a pure-play AI storage leader is complete, but its story is still being written in the shadows of the major indices.

The Engine: AI Demand and the Memory Shortage

The surge in Sandisk's value is not a market whim. It is the direct result of a powerful, structural shift in technology demand. The fundamental driver is the explosive growth of artificial intelligence, which is creating an unprecedented need for data storage. Demand for NAND flash memory, the core technology behind Sandisk's products, is expanding at a compound annual growth rate of 13%, fueled by AI infrastructure buildouts, cloud computing, and the proliferation of data-generating devices.

This demand is now decisively outpacing supply. The market is experiencing a clear shortage, which is being reflected in sharp price increases. Contract prices for solid-state memory devices are expected to increase at least 40% quarter over quarter in the first quarter of 2026. This is the classic setup for a supply-constrained industry: when demand grows faster than capacity, the pricing power shifts to the producers. For a company like Sandisk, which is now a pure-play on this memory boom, this dynamic is a direct path to higher margins and profitability.

The sector's momentum was recently re-ignited by a high-profile endorsement. At the CES show earlier this week, Nvidia CEO Jensen Huang highlighted the industry's critical need for memory and storage, calling it "a completely unserved market today". His comments, delivered to a global audience, served as a powerful catalyst, sending memory stocks like Sandisk soaring. This wasn't just a technical rally; it was a validation of the underlying thesis from one of the industry's most influential figures.

For a value investor, this is the core of the story. The company is riding a long-term, secular trend-the AI data cycle-with a tangible shortage creating immediate pricing power. The question now is whether the stock's price has already fully reflected this powerful engine, or if the compounding effect of this demand-supply imbalance still has room to run.

Valuation and the ETF Exclusion Mechanism

The stock's explosive run has left it trading at a premium. Sandisk now commands a valuation of approximately 7x trailing sales. That multiple is not cheap, and it reflects the market's full recognition of the company's transformation into a pure-play AI storage leader. For a value investor, such a price leaves little margin of safety. It prices in near-perfect execution of the AI-driven memory boom, offering no room for error or a slowdown in the sector's growth.

This premium valuation is the direct result of a strategic corporate move. Sandisk returned to public markets in February 2025 after being spun off from Western Digital. The company had been a private subsidiary since 2016, when it was taken private by its parent. The spin-off reintroduced it to investors after nearly a decade away, and the market's response has been a powerful vote of confidence in its new, focused identity.

Yet, this same corporate history is the root of its absence from major tech ETFs. Funds like the Invesco QQQ Trust (QQQ) and the iShares Tech Sector ETF (IYW) are built for large-cap, established tech giants. They are designed to track the performance of the sector's dominant players, not smaller, recently spun-off companies. Sandisk's return to public markets followed a complex corporate restructuring, and its inclusion in the S&P 500 only came in November. This timing lag means that even after its massive rally, it remains outside the core holdings of these broad-based funds.

The structural exclusion is a double-edged sword. On one hand, it allowed the stock to soar without the immediate pressure of institutional index buying. On the other, it means the stock's success story is being written in isolation, disconnected from the mainstream market narrative. For investors who rely on these ETFs for market exposure, the opportunity was missed. The stock's journey from legacy brand to AI pure-play is complete, but its price now reflects that journey in full.

Catalysts, Risks, and Alternative Exposure

The sustainability of Sandisk's rally hinges on a few forward-looking factors. The most immediate determinant is the trajectory of memory chip prices and inventory levels. The current 40% quarter-over-quarter price increase is a powerful near-term profit driver, but it depends on the supply shortage persisting. If inventory builds or demand softens, that pricing power could erode quickly, pressuring margins and profitability.

The major risk is a reversal of the AI infrastructure buildout. The entire thesis rests on the continued, aggressive spending by hyperscalers for data centers. A slowdown in that capital expenditure would directly reduce demand for NAND flash. More broadly, the industry is cyclical. After a period of intense investment and price gains, there is always the risk of an oversupply cycle as new capacity comes online, which could trigger a sharp price correction. This is the classic memory cycle that investors must watch.

For an investor who sees merit in the long-term AI storage thesis but is wary of the stock's premium valuation and ETF exclusion, there are alternative paths to exposure. Niche ETFs that target specific market segments can provide targeted access. The Invesco S&P 500 Spin-Off ETF (PSP) is designed to capture companies like Sandisk that have recently returned to public markets after a corporate restructuring. Similarly, broader technology ETFs like the iShares U.S. Technology ETF (IYW) include Sandisk and offer a diversified way to gain exposure to the sector, albeit with the stock's weight diluted across hundreds of holdings.

The bottom line is that Sandisk's story is now fully priced into its stock. The catalysts are clear-the AI demand cycle and memory shortage-but so are the risks. For a value investor, the stock's current price leaves little room for error. The alternative is to either wait for a more attractive entry point or to seek exposure through a fund that captures the broader theme without the idiosyncratic risks of a single, high-flying name.