SanDisk had projected to investors that its gross margin would reach 80% by fiscal year 2030. Currently, its gross margin stands at 84.6%. Despite this, its stock price still rose by 13.67%.
Typically, a downward revision in margin expectations would weigh on a stock price. But not this time, thanks to the company's recently released performance data.
SanDisk Stock (SNDK) Performance
Why SanDisk Stock Rose on a Lower Margin Target
Gross margin refers to the profit remaining after deducting production costs. SanDisk reported a gross margin of 84.6% for the quarter ending July 3, up from 78.4% three months prior. The new target of approximately 80% is lower than both of these figures.
Now let's take a longer view. In the quarter ending March 2025, this margin was 22.5%. Subsequently, margins climbed to 26.2%, 29.8%, 50.9%, 78.4%, and 84.6%. Over just five quarters, the figure nearly quadrupled.
Therefore, the guidance is not actually a downgrade. Management suggests that the surge in stock price could become permanent growth. Thursday's closing price was $1,528.11. Investors are viewing 80% as a floor rather than a ceiling for the stock price.
The Number Behind SanDisk's Margin Surge
SanDisk produces NAND flash memory, the storage chips inside solid-state drives. AI data centers are purchasing these flash memory chips in large volumes. The company's revenue for the last quarter reached $8.97 billion, up 51% quarter-over-quarter and 372% year-over-year. Full-year revenue reached $20.2 billion.
However, the company explained the source of this growth to the U.S. Securities and Exchange Commission. Approximately two-thirds of the growth came from price increases, with only one-third coming from an increase in chip shipments.
Prices created these profit margins, and prices can also erase them.
This precedent is not new. In 2023, the NAND flash memory market shrank by nearly 40% to $36.7 billion, one of the most severe downturns in semiconductor history.
After that event, SanDisk's margins once fell to near 22%. Previous warnings about the surge in AI memory stocks also pointed to the same cycle.
Management's answer is contracts. Eight customers have signed multi-year agreements, covering approximately half of shipments for fiscal year 2027, with that proportion rising to two-thirds by fiscal year 2028.
These deals set a price floor. CEO David Goeckeler mentioned these deals when announcing fourth-quarter results.
"We ended fiscal 2026 with a leading technology portfolio, establishing data centers as a key growth pillar, and deepening our customer partnerships."
Are You Late to SanDisk's 500% Rally?
Wall Street thinks not, and the consensus is unanimous. JPMorgan resumed coverage of the stock with an "Overweight" rating and a price target of $2,250, about 47% above Thursday's closing price.
Susquehanna's target is $3,250. Even more cautious investors are bullish on Susquehanna, with a target of $1,750, still 15% above the current price.
No major bank has published a target below the stock's current trading price. This unanimity itself is noteworthy.
Wall Street Targets SanDisk Stock
This valuation is based on the same assumptions. The stock trades at 20.7 times past earnings, but only 7.2 times expected earnings.
This gap only makes sense if profits continue to grow. Most of the top AI stocks in 2026 trade based on less optimistic expectations.
For those who mistimed their bets, the losses were severe. The stock hit a peak of $2,335 on June 25, then closed at $1,015.89 on July 29.
That represents a 56% drop in five weeks, followed by a 50% rebound. The stock is up 541% year-to-date, but still 35% below its June high, though analysts still give it a "Strong Buy" rating.
SanDisk Stock Analyst Ratings. Source: TipRanks
What Could Break the Case
China is the most obvious threat. Manufacturer YMTC (Yangtze Memory Technologies Co.) could capture as much as 10% of global NAND flash memory capacity as early as next year.
Its third factory in Wuhan is set to begin mass production in 2027. Cheaper supply from China will impact prices and shoulder two-thirds of the work.
Concentration is another risk. Investor Steve Eisman argues that the weakness in AI trades lies in their over-reliance on a few buyers.
SanDisk has contracts with eight companies. The question now is whether the 80% margin represents its lowest level or merely reflects the strong performance of the past year.
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