Citi: Sandisk quarterly results beat expectations: AI customers lock in supply as price increases coexist with capacity constraints

What drove the beat in the quarter ended in September?

Sandisk reported revenue of $11.03 billion for the quarter ended in September, up 23% sequentially and 37% year over year. That exceeded company guidance of $10.3 billion to $10.8 billion and the FactSet market consensus of $10.718 billion. Earnings per share were $49.51, versus market expectations of $46.67.
Bit shipments grew more than Citi expected, while the average selling price was below its forecast. Calculated using management’s figures, quarterly bit shipments rose 13% sequentially and prices increased 9%. Gross margin was 85.1%, above the 85% upper end of company guidance and the market expectation of 84%.
For the second quarter of fiscal 2027 ending in December, the company guided for revenue of $12.2 billion to $12.6 billion and earnings per share of $55 to $57. Market expectations were $12.311 billion and $53.60, respectively.

Management said NBM long-term agreements cover about 50% of bits to be shipped in fiscal 2027 and nearly two-thirds in fiscal 2028, with customer commitments extending beyond fiscal 2030. Some existing customers underestimated NAND demand for AI infrastructure and are returning to seek additional capacity.
Management said customers thoroughly forecast demand and plan their product mix before signing agreements. Renewals typically involve separate contracts, with prices and bit volumes renegotiated based on market conditions at the time. Additional supply therefore provides demand visibility and gives the company an opportunity to capture more value when customers make additional purchases.
Management said potential demand under NBM agreements exceeds available supply through the end of the decade. The company has not changed its long-term supply growth plan, however, and still targets bit growth in the mid-to-high teens. Process transitions are difficult to accelerate quickly, wafer production takes about 120 days, and the product mix can only be adjusted gradually.

Management expects data center bit demand to grow 40% year over year in 2027, after more than doubling in calendar 2026, and to account for more than 50% of NAND bit consumption. Sandisk wants to increase the share of its own bit shipments and revenue coming from data centers. Management cited BiCS8 technology, wider adoption of TLC and QLC, and the use of NAND by AI inference across more workload tiers as drivers.
Management expects volume growth and modest price increases together to drive revenue over the next few quarters, with prices continuing to rise slightly in fiscal 2027. It also acknowledged pressure from DRAM costs but remains confident in the profitability of long-term agreements.
End-device demand for PCs and low-end smartphones remains weak. Management expects storage-capacity demand for PCs, smartphones and data centers to grow next year as storage capacity per device increases. For modeling the quarter ending in March, it advised taking seasonality in non-data-center businesses into account.

Citi maintained its buy rating and $2100 price target, valuing the stock at 7 to 8 times its calendar 2027 earnings-per-share forecast. The bank is optimistic about enterprise SSD share gains, data center demand and qualification of BiCS8 products, and expects a higher data center share to support long-term margins.
Adjusted free cash flow for the quarter ended in September was $5.7 billion, and the company repurchased $5 billion worth of shares. Management reiterated its commitment to maintaining a debt-free balance sheet and returning all excess cash flow to shareholders.
Citi also cautioned that competition for share among major suppliers could intensify price competition. Currently underutilized industry capacity could also shift the market into oversupply in a short period, shortening the price-increase cycle.