Sandisk, Western Digital drag on chip stocks as lofty expectations eclipse strong earnings

Data storage firms, Sandisk and Western Digital, experienced a sharp decline on Thursday following earnings that disappointed the market despite forecasts exceeding analyst expectations. Sandisk's shares dropped 13.3%, trading at $1,178, while Western Digital's shares fell 19.1%, closing at $420, marking its steepest one-day decline in nearly a year if the losses persist.

Both companies had initially reported revenue surpassing estimates by LSEG, but the market's reaction highlighted the lofty expectations placed on AI-focused stocks following impressive gains throughout the year. Divya Mathur, a portfolio manager at ClearBridge Investments, suggested that investors were reassessing their expectations and risk appetite, leading to sharper price swings than would typically be expected based on the underlying fundamentals.

The semiconductor sector has seen significant volatility, driven by high expectations for AI-related investments and a global shortage of high-end memory chips, which has led to rising chip prices. Despite this, analysts remain optimistic about data center demand sustaining the performance of these firms, with both Sandisk and Western Digital reporting robust growth in the data center segment.