SanDisk Corporation's shares have experienced a remarkable ascent this year, climbing an impressive 133% and securing its position as the leading performer within the S&P 500 index. This significant upswing is unfolding amidst a pronounced global scarcity of memory components, a condition that has propelled numerous memory-focused enterprises to achieve triple-digit returns in recent months. Intriguingly, despite these substantial gains, an analysis of conventional valuation indicators reveals that these companies are not yet exhibiting signs of excessive market enthusiasm or overvaluation.
In stark contrast to SanDisk's exceptional trajectory, the Invesco QQQ Trust, a prominent exchange-traded fund tracking the Nasdaq-100, has seen a comparatively modest increase of merely 0.28% over the same period, underscoring the considerable performance disparity. This divergence highlights a key trend: the surge in memory stock prices is predominantly underpinned by a robust expansion in corporate earnings, rather than an escalation of price-to-earnings multiples. According to insights from Goldman Sachs analyst Ryan Hammond, who noted the memory sector's emergence as a critical bottleneck in AI infrastructure, leading memory firms such as Micron, Western Digital, SK Hynix, and Samsung have collectively appreciated by an average of 145% since the final quarter of 2025, and 55% year-to-date. This growth, Hammond emphasizes, is largely a direct consequence of their burgeoning profitability.
Further supporting this perspective, the average memory stock is currently trading at approximately 12 times its forward earnings. This valuation not only represents a significant discount when compared to the broader market's much higher price-to-earnings ratio but also falls below the memory sector's own historical five-year average multiple. This data suggests that the escalation in stock prices is a rational response to enhanced earnings, indicating that valuation multiples have largely remained stable. A parallel can be drawn with NVIDIA Corporation's performance between late 2022 and mid-2024, during which its stock price and earnings both multiplied by a factor of twelve, with valuation multiples holding steady. However, a more recent shift has seen Nvidia's shares plateau over the past five months, despite a 37% rise in forward earnings estimates. This pattern illustrates how strong earnings growth, combined with investor concerns about cyclical 'over-earning,' can lead to multiple compression and unpredictable share price movements.
Ultimately, the current momentum in memory stocks is sustained by persistent earnings strength. While prices have dramatically increased, valuation multiples have not followed suit proportionally. This situation presents investors with a nuanced challenge: the central question revolves not around whether the rally has exceeded reasonable bounds, but rather whether companies can maintain their rapid earnings growth to justify and further fuel this upward trend in the long run.