AI Demand Powers SNDK Rally, Memory Cyclicality Poses Key Risk

George Tsilis (0:04)

Welcome back to the Tech Corner. I'm George Tsilis, Senior Markets Contributor with the Schwab Network. On this week's edition, we're going to be revisiting SanDisk Incorporated. Now, SanDisk is known to be a major global provider of flash memory and data storage solutions. Following its separation from Western Digital back in February of 2025, SanDisk became an independent pure play flash storage company. Its products include enterprise solid state drives, embedded storage, consumer flash products, memory cards, and NAND flash components. The company's most important growth opportunity today is increasingly AI-driven data center storage. The company also maintains a long-standing manufacturing partnership with Kiyokusa in Japan, which provides large-scale NAND production while allowing SanDisk to avoid funding the entire manufacturing footprint itself. The bigger story today for SanDisk is that it's evolving from a traditional cyclical NAND company into an increasingly important AI infrastructure and enterprise storage provider. Now from a competitive landscape, SanDisk competes primarily with other NAND manufacturers. For example, Samsung Electronics remains the global NAND market leader in Korea. So is SK Hynex with its enterprise storage business, which competes heavily in data center solid-state drives as well. Micron is a US-based competitor that competes across enterprise and consumer NAND memory, although Micron also has a significant exposure to DRAM and high bandwidth memory. Kioxia out of Japan is an unusual relationship with SanDisk because it's both SanDisk's major manufacturing partner and an independent competitor. SanDisk is therefore competing in an historically cyclical industry while increasingly trying to differentiate itself through AI storage, advanced NAND technology and long-term customer agreements. Now, when it comes to unique value, SanDisk's biggest advantage is its position as a pure-play NAND company. With direct exposure to AI-driven storage demand. Artificial intelligence doesn't require only GPUs and high bandwidth memory. AI systems also need enormous amounts of data storage for model weights, databases, storage and cache used during inference. That creates growing demand for fast, power-efficient enterprise SSDs. SanDisk believes enterprise data center flash demand could reach roughly 1.2 zettabytes by 2030 The company is also developing technologies such as bit-cost scalable NAND, advanced 3D NAND flash memory and high bandwidth flash, which could allow flash memory to sit increasingly close to AI processors. So the opportunity for SanDisk is no longer about selling inexpensive storage. SanDisk is attempting to become a more critical part of the artificial intelligence memory hierarchy. Now let's take a look at some more recent news for the company. Going back to August 5th, the company reported exceptionally strong fiscal fourth quarter results. Revenue reached approximately $8.97 billion, up 372% year-over-year and 51% sequentially quarter-over-quarter.

On a non-GAAP EPS basis, the company printed $39.25, while gross margins also increased to an extraordinary 84.6% of sales. For all of fiscal year 2026, the company generated approximately $20.25 billion in revenue, which was up 175% over the previous year. Data center revenue was certainly the standout. Full year data center revenue reached approximately $5.15 billion, up 437% year over year. And Q4 data center revenue nearly doubled sequentially to approximately $3 billion from the previous quarter. One important caveat is that management said roughly two-thirds of the sequential revenue increase came from higher NAND pricing rather than higher unit volume. So current earnings are benefiting enormously, not necessarily because of more volume, but because of more favorable pricing environment. Now for fiscal year 2027's outlook, management expects strong environment to continue. Fiscal Q1 revenue is expected to be around $10.8 billion on the high end, while non-GAAP EPS is expected to reach up to $46 a share, and gross margin is expected to be somewhere between 83 and 85%.

So at least in the near term, management is not forecasting a meaningful deterioration in either demand or pricing. Now let's also take a look at some other positives for the company. One of the biggest positives is SanDisk accelerating exposure to AI data centers. Data center revenue increased more than 400%, like I mentioned, during fiscal 2026, showing that AI storage demand is moving very quickly from a future opportunity into actual revenue. The company is also changing the way it sells NAND. The company has signed new long-term customer agreements that include committed purchase volumes and minimum financial guarantees. These agreements already cover roughly half of the expected fiscal year 2027 bit shipments, and approximately two-thirds of expected fiscal 2028 shipments as well. Therefore, this makes the business less dependent on short-term NAND spot pricing. Its technology is also a major catalyst. SanDisk bit-cost scalable NAND provides next-generation high-density storage technology with faster speeds and lower power consumption. The company is also developing high bandwidth flash, which could place much larger amounts of flash memory closer to those AI processors. SanDisk has significantly expanded its share repurchase authorization, giving management sustainable flexibility to return cash to shareholders. Now, from a valuation standpoint, SanDisk has a market capitalization of approximately $265 billion.