SanDisk Earnings Beat Expectations, Long-Term Agreements Strengthen Evidence of Earnings Sustainability

Overview

This report is Morgan Stanley’s review of SanDisk’s March-quarter 2026 earnings. The core conclusion is that near-term earnings and guidance were already clearly stronger than market expectations, and more importantly, NBM/LTA long-term agreements, datacenter demand growth, NAND supply discipline, and capital returns together strengthen the evidence for earnings sustainability. The report maintains an Overweight rating and a $1,100 target price.

Core views

Morgan Stanley believes SanDisk’s results this quarter were “impressive,” but the long-term agreement structure is what truly affects the valuation multiple. The report notes that 5 NBM agreements cover more than one-third of FY27 bits, with signed agreements representing minimum revenue of $42bn and carrying more than $11bn of financial protection, helping demonstrate that customers view memory shortages as a multi-year constraint in AI buildouts. The company’s March-quarter EPS was 62% above consensus, and June-quarter EPS guidance was 41% above consensus. Although the after-hours share-price decline reflects the market’s continued concern about earnings durability, the report believes investors should buy on pullbacks because the current level of earnings may persist longer than the market expects.

Analysis framework

The report combines earnings comparison, guidance comparison, long-term agreement disclosures, industry supply-demand judgment, valuation multiples, and risk-reward scenario analysis. The earnings section compares actual revenue, gross margin, and EPS with consensus and Morgan Stanley estimates; the industry section focuses on NAND supply growth, capex discipline, datacenter demand, and AI-related memory constraints; the valuation section derives the $1,100 target price from 23x through-cycle EPS of $48 and provides bull-case and bear-case scenarios of $1,500 and $600, respectively.

Methodology notes

• Valuation frameworkthrough-cycle EPS multiple

  Through-cycle EPS multiple valuation

  Morgan Stanley derives its $1,100 target price from 23x through-cycle EPS of $48; the bull-case scenario uses 25x EPS of $60, corresponding to $1,500; the bear-case scenario uses 20x EPS of $30, corresponding to $600.

• Earnings assessmentactual_vs_consensus_and_ms_estimates

  Actual results versus consensus expectations and sell-side model

  The report compares revenue, gross margin, EPS, segment revenue, and next-quarter guidance with consensus expectations and Morgan Stanley estimates to assess the magnitude of the earnings beat and direction of forecast revisions.

• Industry judgmentmemory_supply_demand_durability

  Memory supply-demand durability assessment

  The report assesses whether current earnings have longer-cycle sustainability through long-term supply agreements, RPO, financial protection, datacenter revenue growth, NAND bit supply, and capex discipline.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SanDisk Corporation (SNDK.US)

  Core covered company

  Strengths

  Earnings and guidance were significantly above consensus expectations; datacenter revenue grew more than 3x sequentially; long-term agreements bring RPO and financial protection; capex discipline and buybacks enhance cash returns.

  Weaknesses

  Upside from the target price relative to the current share price is limited; the market still questions the cyclical durability of current high earnings; management’s “acyclical” view has not yet been fully adopted by the report.

  Comparison

  The report still prefers MU because MU is cheaper on EPS valuation and the DRAM bottleneck is more significant; SanDisk’s advantages lie in higher FCF conversion and improving NAND/eSSD demand.

  Risks

  NAND demand falling short of expectations, industry capex rebounding, failure to gain datacenter share, and intensifying competition from China.

• Micron Technology Inc. (MU.O)

  Comparable company and preferred name

  Strengths

  The report believes MU has a cheaper valuation, the DRAM bottleneck is more important, and AI exposure is more direct.

  Weaknesses

  Compared with SanDisk, the main text of the report does not elaborate on MU’s results this quarter.

  Comparison

  Morgan Stanley remains positive on memory and SanDisk, but prefers MU as a cheaper name with a stronger DRAM supply bottleneck.

  Risks

  Weakening HBM demand, intensifying competition, and rapid pricing declines.

• NAND / eSSD

  Key business and industry driver

  Strengths

  Cloud and AI demand is accelerating, eSSD penetration is increasing, and supply growth and capex are below expectations.

  Weaknesses

  The NAND industry remains cyclical; if end demand or inventory deteriorates, prices may fall quickly.

  Comparison

  Compared with DRAM, SanDisk benefits from NAND/eSSD, but the report believes the DRAM bottleneck is more favorable for MU.

  Risks

  Supply recovery, demand slowdown, competitor capacity expansion, or increased Chinese share.

Key data

• March-quarter revenue$5.950bnUp 251.0% YoY and 96.7% QoQ, above consensus of $4.686bn and Morgan Stanley’s estimate of $4.742bn.
• March-quarter Non-GAAP EPS$23.41Above consensus of $14.45 and Morgan Stanley’s estimate of $14.72.
• March-quarter Non-GAAP gross margin78.4%Above consensus of 66.3% and Morgan Stanley’s estimate of 67.3%.
• Midpoint of June-quarter revenue guidance$8.0bnAbove consensus of $6.377bn and Morgan Stanley’s estimate of $7.824bn.
• June-quarter Non-GAAP EPS guidance$31.50Above consensus of $22.28 and slightly above Morgan Stanley’s estimate of $30.44.
• NBM agreements5 agreements; signed agreements have minimum revenue of $42bn; financial protection exceeds $11bnThe agreements cover more than one-third of FY27 bits, with the longest agreement term of 5 years.
• Datacenter revenue$1.467bnAccounted for 25% of revenue, up 233.4% QoQ.
• Edge revenue$3.663bnAccounted for 62% of revenue, up 118.3% QoQ.
• Consumer revenue$820mnAccounted for 14% of revenue, down 9.6% QoQ.
• Buyback authorization$6bnThe company has repaid remaining debt and announced a new buyback plan.
• Target price$1,100.00Based on 23x through-cycle EPS of $48.

Impact & implications

The report’s impact on SanDisk is positive: earnings and guidance demonstrate strong near-term fundamentals, NBM/LTA agreements and RPO disclosures strengthen market confidence in earnings durability, and AI demand and datacenter growth continue to drive NAND pricing and margins higher. For the industry, the report believes customers’ willingness to sign long-term agreements with financial protection indicates that memory shortages may not be merely a short-cycle fluctuation, but rather a multi-year bottleneck in AI infrastructure buildouts.

Risks

• NAND industry growth falls short of expectations.
• Industry participants renew capex increases to compete for share.
• SanDisk fails to make sufficient progress in the datacenter market and loses market share.
• Chinese competitors continue to increase share.
• Memory prices may fall quickly if end demand weakens or inventory rises.
• The enforceability of long-term agreements and earnings durability still require validation in subsequent quarters.

What to watch

• The number of subsequent NBM/LTA agreements signed, the percentage of bits covered, financial protection, and escrow arrangements.
• Whether the share of FY27 bits locked in by long-term agreements reaches or exceeds 30%-50%.
• Whether datacenter revenue and eSSD penetration continue to grow rapidly.
• Whether NAND ASP, bit shipments, and gross margin remain at high levels.
• Whether competitors’ capex reaccelerates.
• SanDisk’s free cash flow, cash balance, and buyback execution progress.
• Whether CY26 and CY27 revenue, gross margin, and EPS continue to be revised upward.