SanDisk Sees AI Reshaping NAND Market for Western Digital

What happened

SanDisk reported datacenter revenue of $1.47 billion in Q3 FY2026, representing 233% sequential growth. Total revenue reached $5.95 billion, up 97% sequentially and 251% year-over-year, with GAAP net income of $3.615 billion and diluted EPS of $23.03. Gross margin expanded to 78.4% from 22.5% a year earlier. The company guided Q4 FY2026 revenue between $7.75 billion and $8.25 billion with non-GAAP EPS of $30 to $33. Morgan Stanley noted SanDisk's view that AI is fundamentally changing the NAND market, driven by expanding large language model key-value cache requirements and larger context windows that DRAM alone cannot handle. SanDisk's quad-level cell (QLC) Stargate solutions, under hyperscaler qualification for over a year, are expected to begin shipping for revenue in Q4. More than one-third of fiscal 2027 bit output is already committed under New Business Model agreements running at gross margins above 80%. The stock touched a 52-week high of $2,354.39 on June 22 before pulling back alongside broader tech sell-offs.

Why it matters

SanDisk's performance illustrates a structural shift in the memory hierarchy as NAND moves higher to support AI inference workloads. Cloud computing is expected to become the largest end market for NAND later this year, validating demand beyond traditional consumer and enterprise applications. For Western Digital, SanDisk's trajectory demonstrates the viability of enterprise storage strategies targeting AI infrastructure. The peer's ability to command gross margins above 75% through multi-year contracts and purpose-built products shows how memory suppliers can capture value in AI deployment cycles. SanDisk's datacenter revenue grew 645% year-over-year in Q3, signaling sustained enterprise appetite for triple-level cell (TLC)-based SSDs optimized for performance-intensive AI workloads. Wall Street analysts have raised earnings estimates for upcoming quarters, with 13 of 16 covering analysts increasing projections. Bank of America raised its target to $2,100 from $1,550, while Mizuho set a $2,200 target, both citing memory pricing strength through 2027.

Bigger picture

The broader NAND market is undergoing a fundamental revaluation as AI infrastructure spending accelerates. Goldman Sachs projects a structural NAND shortage through 2028, supporting pricing discipline across the industry. Memory chip makers have seen capital inflows expand beyond traditional semiconductor leaders like Nvidia and Broadcom. SanDisk's 727% year-to-date gain in 2026 made it the best-performing S&P 500 component, according to Slickcharts. The shift toward enterprise and datacenter applications represents a departure from historical consumer-driven NAND cycles, potentially offering more stable demand and margin profiles. FactSet data showed SanDisk as one of the largest contributors to Information Technology sector earnings growth in dollar terms, alongside Nvidia, Apple, and Micron. However, caution flags exist: Morningstar assigned a $1,000 fair value with a 2-star rating, warning of bubble conditions, while monthly RSI readings reached 99.14. Insider activity tilted toward sales, including CTO Alper Ilkbahar selling 2,000 shares around $1,755 on June 1. The stock dropped 13.64% on June 23 following a 10% crash in South Korea's Kospi, which triggered broader tech sell-offs unrelated to SanDisk fundamentals.

What to watch

Micron's Q3 earnings on June 24 could provide confirmation of memory pricing trends and AI-driven demand across the sector. SanDisk's Q4 FY2026 results will reveal whether QLC Stargate solutions ship for revenue as expected and whether datacenter momentum sustains above $1.47 billion quarterly run rates. Wall Street is projecting Q2 fiscal 2027 EPS of $33.75 on revenue approaching $8.3 billion, compared to year-ago comparables of $0.29 on $1.9 billion. Monitor whether New Business Model contracts continue to lock in pricing above 80% gross margins and whether cloud providers expand NAND deployments as context windows and KV cache requirements grow. Technical analysts are watching the 21-day exponential moving average near $1,813 as a support level and the June 16 high of $2,167 as a pivot. Any stabilization in NAND supply-demand dynamics or evidence of memory glut would challenge the structural shortage thesis underpinning current valuations.