Written by: Rita

SanDisk reported revenue of $8.97 billion in the second quarter, exceeding Goldman Sachs' expectation of $8.84 billion and the market expectation of $8.71 billion, with a gross margin of 84.6% also outperforming the market. However, the midpoint of its third-quarter revenue guidance is $10.55 billion, lower than Goldman Sachs' expectation of $11.65 billion and the market expectation of $11.15 billion, while the midpoint of earnings per share guidance is $4.5, aligning with market expectations but below Goldman Sachs' $49.95. On August 5, Goldman Sachs initiated coverage with a buy rating and a target price of $220. Goldman Sachs expects the stock price to be pressured in the short term due to guidance being below the most optimistic expectations, but the mid-and long-term logic remains intact. Market expectations had already become extremely high before the earnings report, and any signals falling short of the most optimistic expectations will be amplified.

The NAND industry is experiencing dual structural changes on both the supply and demand sides. The DRAM industry has already completed the consolidation from 15 players to 3, significantly improving supply discipline. The consolidation process in NAND is slightly slower, but the explosive growth of storage demand from AI data centers is changing this landscape. As a pure NAND entity, SanDisk's pricing environment and profit rhythm differ from DRAM manufacturers, thus allowing for greater profit elasticity.

Performance Exceeds Expectations, Guidance Reveals Expectation Gap

In the second quarter, SanDisk's revenue grew by 50.7% quarter-over-quarter and 371.6% year-over-year. The gross margin was 84.6%, with a non-GAAP earnings per share of $39.25. The adoption of NAND by AI data centers is accelerating, with enterprise SSD demand continuing to expand, and NAND pricing maintaining a strong upward momentum.

The demand growth for enterprise SSDs is the core driving force behind the second quarter's better-than-expected performance. AI training and inference require high-speed, large-capacity storage to accommodate model parameters and intermediate data; traditional hard drives cannot meet latency requirements, making enterprise SSDs the standard for AI infrastructure. SanDisk continues to expand its market share in this field, with the concentrated release of large customer orders driving strong quarterly revenue growth. The supply-demand gap for NAND did not narrow in the second quarter, partly due to HBM capacity taking up some wafer fab capacity, indirectly limiting NAND's supply elasticity.

The expectation gap in the third-quarter guidance is the core focus of the market. The midpoint of the revenue guidance is $10.55 billion, which is 9.5% lower than Goldman Sachs' expectation and 5.4% lower than the market expectation. The gross margin guidance is 84%, which is 267 basis points lower than market expectations, and the midpoint of earnings per share guidance is $4.5, lower than Goldman Sachs' $49.95 but roughly in line with the market expectation of $45.34. Goldman Sachs believes that guidance below the most optimistic expectation reflects excessive market expectations; key issues that management needs to explain on the earnings call include: details of new long-term agreements, potential stock repurchase plans, sustainability of pricing momentum, and the timeline for capacity expansion.

Goldman Sachs concludes that the negative reaction after the earnings report is primarily a correction of expectation gaps rather than a deterioration of the fundamentals. The market had already priced in the strongest pricing expectations and AI adoption expectations prior to the earnings report, and the guidance did not reach the most optimistic levels, with the stock price retreating 40% from its June peak, indicating some of the expectation gap has been digested.

LTAs are a Key Focus, Pricing Momentum to be Verified

Goldman Sachs noted that SanDisk signed new long-term agreements (LTAs) in the second quarter but has not disclosed the details. The core questions the market is interested in include: what are the pricing terms of the LTAs, what is the customer coverage and capacity ratio of the agreements, and what is the potential impact on future ASPs and gross margins.

The logic of LTAs is similar to precedents in the DRAM industry. The core function of long-term agreements is to smooth out cyclical fluctuations, exchanging long-term commitments on quantity and price for stable supply. For SanDisk, LTAs may suppress the upward elasticity of ASPs in the short term, as locked-in prices for large customers mean that price increases in the spot market cannot be fully transmitted. However, in the long run, LTAs can significantly improve revenue visibility and cash flow predictability, which is one of the foundations for Goldman Sachs' positive outlook on SanDisk's mid-to-long-term value. Goldman Sachs' assessment of LTAs is that they will suppress ASP elasticity in the short term while enhancing revenue and cash flow visibility in the long term.

The adoption of NAND by AI data centers is contributing to incremental demand, but Goldman Sachs believes there is still a divergence in the market regarding the sustainability of AI-driven NAND demand. Whether SanDisk can continue to expand its market share in the enterprise SSD market and whether YMTC's technological iterations will pose a threat to pricing power are core variables in the mid-to-long term.

Currently, SanDisk's stock price corresponds to an expected price-to-earnings ratio of about 20.7 times for 2026 and about 6.3 times for 2027. Goldman Sachs' target price of $220 is based on a 20 times price-to-earnings ratio multiplied by a normalized earnings per share of $11. If the long-term structural changes in NAND pricing cannot be sustained, or if YMTC continues to advance its technology roadmap, expanding SanDisk's enterprise SSD market share below expectations, the valuation will face downside risks.

After Correction, Valuation is Reasonable; Goldman Sachs Initiates Coverage with Buy

Goldman Sachs has initiated coverage with a buy rating in its report, with a target price of $220 corresponding to about 54% upside potential. Goldman Sachs believes SanDisk's free cash flow yield is expected to reach 14.1% in 2027 and 16.5% in 2028, and that the company has the ability to convert pricing advantages into sustained cash flows amidst the structural changes in the NAND industry.

The short-term flaws in guidance will not alter the mid-to-long-term logic. The incremental demand from AI data centers for NAND is forming a new growth curve, and the signing of LTAs is improving revenue visibility. Goldman Sachs' core judgment is that the market's disappointment regarding the third-quarter guidance stems from excessive expectations, and that the fundamentals have not deteriorated. SanDisk's long-term value depends on whether the structural changes in the NAND industry can be sustained, and whether the company can fulfill expected expansions in the enterprise SSD field. If the expectation gap in the third-quarter guidance is fully digested, SanDisk's long-term value will still be attractive. Goldman Sachs maintains a neutral rating on Micron, suggesting that similar exposure in the end market means SanDisk's guidance flaws will also negatively transmit to Micron.

Disclaimer

This article is a整理与解读 by潮向研究 of third-party brokerage research reports (Goldman Sachs, August 5, 2026), coupled with整理 of publicly available market information. The ratings, target prices, earnings forecasts, and related judgments cited in the text reflect the opinions of the brokerage analysts and represent the positions of their respective organizations; they do not represent the views of潮向研究 and do not constitute any investment advice.

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