J.P. Morgan: Sandisk growth shifts toward shipment volumes; long-term agreement targets remain unchanged

Why is this growth a stronger signal of customer demand?

In the first quarter of fiscal 2027, Sandisk revenue was 11.03 billion dollars, up 23% quarter over quarter and above both the upper end of the company’s guidance of 10.8 billion dollars and the Wall Street consensus of approximately 10.69 billion dollars.
JPMorgan estimates that approximately 60% of the quarter-over-quarter revenue increase came from growth in bit shipments and approximately 40% from pricing; in the previous quarter, approximately two-thirds of the increase came from pricing. Bit shipments rose approximately 13% quarter over quarter and average selling prices rose approximately 9%–10%, so the bank sees a stronger signal of underlying customer demand.
Non-GAAP gross margin rose to 85.1% from 84.6% in the previous quarter; non-GAAP earnings per share were 49.51 dollars, above the Wall Street estimate of approximately 46.36 dollars.

The company allocated more bit supply to enterprise solid-state drives. Quarterly data center revenue rose 61% sequentially to 4.8 billion dollars, accounting for approximately 44% of total revenue; edge business revenue rose 7% to 5.83 billion dollars, supported by automotive and Internet of Things demand.
High prices also affected some customers: consumer revenue fell 29% quarter over quarter to 397 million dollars, and the company said customers were adjusting to higher prices.
Management expects data center bit demand to grow approximately 40% year over year in calendar 2027, after more than doubling in calendar 2026, and to account for more than 55% of industry-wide NAND bit demand by then. JPMorgan believes this structural shift can support long-term earnings.

The midpoint of the company’s revenue guidance for the second quarter of fiscal 2027 is 12.4 billion dollars, up approximately 12% sequentially and above the Wall Street consensus of approximately 12.1 billion dollars, but slightly below the buy-side expectations JPMorgan had previously heard.
The company expects non-GAAP gross margin of 84.5%–85.5%; management said the guidance incorporates a modest increase in prices on the same basis. The midpoint of pre-split earnings-per-share guidance is 56 dollars, above the Wall Street estimate of approximately 52.72 dollars.
First-quarter operating cash flow was 6.36 billion dollars, down from approximately 7.14 billion dollars in the previous quarter; however, adjusted free cash flow, including Flash Ventures activities and excluding long-term agreement prepayments and deposits, rose to 5.7 billion dollars from 5.04 billion dollars in the previous quarter.

The company maintained its long-term new business model agreement (NBM) coverage targets: commitments are in place for approximately 50% of bits in fiscal 2027 and approximately 66% in fiscal 2028. The two agreements completed in the first fiscal quarter had already been announced on the previous quarter’s earnings call and were not newly announced this time.
Existing customers are discussing extensions and increased commitments, and new customers are also interested; management said potential demand for agreements exceeds the company’s available supply through the end of the decade. JPMorgan therefore believes the unchanged targets more closely reflect the company’s prudent allocation of supply among customers.
The bank believes long-term, high-margin agreements resembling take-or-pay contracts, together with growing data center demand, can reduce cyclical volatility and support earnings; however, discussions with potential customers must still translate into additional agreements. If AI infrastructure investment slows or NAND suppliers expand capacity too quickly, enterprise solid-state drive orders and prices could come under pressure.
JPMorgan raised its adjusted earnings-per-share forecasts for fiscal 2027 and 2028 to 227.30 dollars and 287.24 dollars, respectively, and maintained its Overweight rating and December 2027 price target of 2250 dollars.