Morgan Stanley: SanDisk data-center revenue surges; Morgan Stanley raises earnings forecasts

How far did results and guidance exceed expectations?

In the quarter ended September 2026, SanDisk reported revenue of 11.031 billion dollars, up 23% sequentially and above market expectations of 10.694 billion dollars. Non-GAAP earnings per share were 49.51 dollars, also above market expectations of 46.36 dollars.
The midpoint of the company’s revenue guidance for the quarter ending in December was 12.4 billion dollars, slightly above market expectations of 12.311 billion dollars. Non-GAAP earnings-per-share guidance was 56 dollars, above market expectations of 53.60 dollars.

Data-center revenue in the quarter ended September was 4.8 billion dollars, up 61.3% sequentially and 1685% year over year, accounting for 43.5% of total revenue. Morgan Stanley believes the company is narrowing its historical data-center market share gap.
Growth was uneven: edge revenue was 5.8 billion dollars, up 7.4% sequentially, while consumer revenue was 397 million dollars, down 28.6% sequentially. Consumer and client revenue combined has fallen from 90% of total revenue a year earlier to 56%.
The bank expects data-center NAND bit demand to grow by about 40% in 2027. If the overall market grows by about 20%, that implies non-data-center demand will be roughly flat. Data-center demand is therefore key to mitigating the impact of a slowdown in consumer devices.

Morgan Stanley expects the NAND market to be undersupplied for the next several years. Results from capital equipment companies show a slight increase in signs of capacity-expansion investment, but such investment remains low by historical standards. If AI demand maintains its current growth rate, supply and demand will be difficult to balance in the near term.
The high proportion covered by long-term agreements has not changed the bank’s view that prices will continue to rise next year. SanDisk customers are seeking to expand the size of their agreements. The company’s average selling price rose about 9% in the quarter ended September, less than at other memory manufacturers that have reported results; the bank believes this is related to the company having locked in some commitments earlier.
Morgan Stanley raised its calendar-year 2027 revenue forecast from 48.964 billion dollars to 57.672 billion dollars, and its earnings-per-share forecast from 211.96 dollars to 271.16 dollars. However, its model projects that calendar-year 2028 revenue will fall to 53.484 billion dollars and earnings per share to 258.28 dollars.

Lower capital expenditure intensity supports shareholder returns: the company has returned 9.5 billion dollars to shareholders over the past two quarters, equivalent to about 4% of shares outstanding. Morgan Stanley expects 30 billion dollars in buybacks next year, or about 80% of its forecast free cash flow.
The bank maintained its overweight rating and 1,750-dollar price target, believing that, as long as end demand remains strong, earnings-per-share accretion from buybacks will help support the share price. Its base case applies a valuation multiple of 28 to through-cycle earnings per share of 62.50 dollars.
The main constraints on this view include a slowdown in AI investment, long-term agreements failing to change customer behavior, and the industry increasing capital expenditure again to compete for market share.