Sandisk Unveiled an $14 Billion Buyback and Warren Buffett Has Something to Say About It

In February 2025, Sandisk (NASDAQ: SNDK) spun off from Western Digital and became an independent company. Since then, its stock price has surged 548% in 2026, making it the top-performing stock in the Nasdaq-100. This impressive growth is driven by soaring demand for NAND flash memory in data center solid-state drives (SSDs). Recently, Sandisk's management authorized a $14 billion stock buyback during its fiscal fourth-quarter earnings report.

Although purchasing a stock after such a significant rise seems unusual, Warren Buffett offers insight to determine if this share repurchase is a wise move. Buffett once stated that when a company can buy its own stock below the intrinsic value of the business, it's usually a great use of cash, as it shrinks the share count and allows existing investors to own more of the profits.

Notably, Apple, a firm with which Buffett holds a significant stake, has consistently repurchased shares, benefiting Berkshire Hathaway by increasing the firm's share of Apple's earnings despite not acquiring more shares. This strategy is advantageous if the management can pay less than the intrinsic value during buybacks, as the remaining shares will inherently become more valuable.

If the management overpays, however, it diminishes value creation for shareholders. Analyzing Sandisk's stock based solely on its percentage gains might lead one to believe the buyback is misguided. However, Buffett would focus on whether Sandisk's business is more valuable than the price paid under the repurchase program. Sandisk's Q4 numbers were impressive, with revenue reaching nearly $9 billion, a 372% year-over-year increase.

The company's data center business has grown 437% year-over-year and now constitutes nearly a quarter of Sandisk's total business. This growth is fueled by the AI boom, which enables Sandisk to command premium pricing for its NAND solutions, boasting gross margins in the mid-80s. The buyback suggests Sandisk's management believes the cash generated by the company will surpass what the market currently values it at.

With fewer shares outstanding, earnings per share (EPS) could appear to grow faster than the underlying business, attracting a new group of investors focused on EPS growth rather than just the NAND market. What sets this buyback apart is the combination of multiyear contracts, the pace of hyperscaler capital expenditures, and Nvidia's efforts to secure extra memory.

In the author's view, Sandisk's authorization of the buyback indicates the management believes the stock is trading below its intrinsic value. Combined with the company's secular growth drivers, this makes Sandisk stock an appealing investment, even outside the realm of AI semiconductor stocks. However, readers should consider that the Motley Fool Stock Advisor analysts did not include Sandisk in their list of the 10 best stocks to buy now.

Investing in Sandisk may not have yielded the same monstrous returns that some other stocks have achieved.