“Storage Super Cycle Has Arrived” Dispute Removes SanDisk (SNDK.US) “Preferred” Investment Logo

The Zhitong Finance App learned that more and more people are beginning to accept references to semiconductor storage supercycles, but controversy persists. Recently, Damo released an in-depth research report on SanDisk, stating that SanDisk is a highly controversial stock, and analyzes the controversy from the three dimensions of demand, supply, and valuation. The conclusion is that SanDisk remains bullish even after a sharp rise in the stock price, but profit growth will take time to match the current stock price, so its “preferred” logo was removed.

Part.01 Dispute 1: Next year's demand growth rate and its impact on shipments

Morgan Stanley's view: The industry's position is expected to grow by 20-25% next year, the highest level in recent years. Under the benchmark scenario, SanDisk will grow at the same time. Under the optimistic scenario, with new QLC products and more flexible supply growth, SanDisk is expected to outperform the industry.

In 2026, the contribution of AI and data centers to the growth of the NAND industry will reach an inflection point. It can now be determined that enterprise-class solid-state drives will increase by 40-50% year over year in 2026. There are differences in forecasting the size of the enterprise solid-state drive market by different agencies, but combined with the purchasing volume of hyperscale manufacturers (about 40EB for each major buyer), it is entirely possible to increase the enterprise solid-state drive bit by more than 120EB in 2026.

Part.02 Dispute 2: What are the prospects for NAND supply growth?

Morgan Stanley's view: NAND supply growth will be limited in 2026, and the SanDisk and Kioxia (Kioxia) joint venture is one of the few potential sources of additional wafer production capacity, which will support a positive judgment on 2026 pricing. Focus on multiple supply-side variables:

Positive factors: Equipment manufacturer reviews confirm limited investment in the first half of 2026. The increase in binary output requires additional expenses, but semiconductor equipment supply chain companies have not seen a recent inflection point in the NAND sector, and the recovery in spending is expected to be concentrated in the second half of 2026 (corresponding supply growth closer to 2027). Core NAND equipment supplier Fanlin Semiconductor (Lam)'s NAND system revenue in the third quarter fell by about 30% month-on-month, and is expected to gradually pick up later, but a sharp acceleration will have to wait until the second half of next year. This is consistent with public statements from Richardson Electronics (Richardson Electronics), VAT, and large OEMs.

DRAM investment is still a priority for Hynix, Micron, and Samsung. Driven by HBM demand and NAND bit growth below pre-2022 levels, these vendors have skewed their capital expenditure budgets towards DRAM. Despite improvements in NAND pricing, DRAM margins are still significantly higher, and HBM's additional demand for wafer output will continue to push investment in the high-return DRAM sector.

Part.03 Dispute 3: SanDisk's reasonable profit prospects and trading range

Morgan Stanley's view: Profitability is expected to increase dramatically. Earnings per share are predicted to be $16.35 in 2026, and peak earnings per share are expected to reach $30 in this cycle.

Under the benchmark scenario, SanDisk bits are expected to grow 15% in 2026. Thanks to BiCS8 production capacity climbing, unit cost will drop 12% year on year (8% year-on-year decrease after excluding underutilization costs and production costs), and pricing will increase 14.4% year over year (no increase in the second half of 2026), supporting 45.7% gross margin and earnings per share of $16.35.

Under an optimistic scenario, revenue growth was higher, with bit growth close to 25%, unit cost down 8% year over year (high-cost enterprise solid-state drive bits drive revenue growth), pricing increased 31% year over year and quarter over quarter in 2022 (12% in the first quarter, then 10%, 3%, 3%, 3%), and pricing in the fourth quarter increased 4% month-on-month. Interest expenses were cut in half from the current estimate of $47 million per quarter, and interest income remained unchanged. Ultimately, it is expected to achieve revenue of $13.1 billion, gross margin of 50.3%, and earnings per share (non-GAAP) of $26.26. If gross margin reaches the medium 50% range, earnings per share are expected to exceed $30.

The product portfolio remains SanDisk's biggest concern in the short term. The enterprise solid-state drive market is enthusiastic but SanDisk's exposure is low (only 12% of bits in the second quarter). SanDisk has been behind in the field of enterprise-grade solid-state drives for many years, but after excluding Yangtze River Storage, its share of bits remained stable. However, enterprise solid-state drives are more expensive, so in years when enterprise-class solid-state drives grow, SanDisk's average price/revenue growth is likely to lag behind its peers.

Under an optimistic scenario, the shortage of hard drives and rising demand for enterprise-grade solid-state drives will accelerate the certification cycle. With leading products, as SanDisk's production capacity of BiCS8 nodes climbs, bit growth is expected to accelerate from the middle to the second half of 2026. SanDisk may be able to further accelerate the rise in production capacity, and the commissioning of the joint venture's new K2 plant will enable it to expand production more flexibly in the second half of 2026.

Part.04 Valuation and Target Price Adjustment Logic

Can NAND use AI to drive profit and valuation multiples like DRAM?

Confirming enterprise-grade solid-state drives as a structural replacement for hard drives would significantly reinforce the long-term bullish logic. However, we currently believe that the accelerated growth of enterprise solid-state drives in 2026 will be one to two years above trend in this long-term growth area. Of course, SanDisk also needs to significantly penetrate this market, which will strengthen investors' confidence that profits will continue to be higher than historical levels.

Can growth drivers spread from a single terminal market to more fields?

Despite the positive outlook for the data center market, unlike DRAM, NAND is still highly dependent on fields such as smartphones and PCs. Therefore, unless the first point above becomes a reality, more participation in the PC and smartphone markets is needed to increase cyclical demand and prolong profit sustainability.

The target price was raised to $230, and the target price for the optimistic scenario was $300. Considering fiscal year 2025, the estimated average earnings per share for the past 9 years was $6.33. If the stock price is $200, the price-earnings ratio corresponding to this profit level is about 32 times.