SanDisk delivered an across-the-board earnings beat, yet its stock plunged as much as 8% in Friday's pre-market session. The problem stemmed from its Japanese wafer fab partner Kioxia, which issued profit guidance below expectations and warned that the AI-driven NAND flash price surge is cooling.
SanDisk's Thursday after-hours report card was nearly flawless: revenue and earnings per share beat estimates, gross margin hit 85%, guidance topped Wall Street expectations, and the company added a $5 billion buyback along with a 8-for-1 stock split. Yet the stock barely budged after hours.
At 5:54 AM Eastern Time on Friday, Bloomberg reported Kioxia's guidance, and SanDisk fell as much as to $1,197.57 in pre-market trading, a 16% retreat from Wednesday's high of $1,419. Micron Technology moved lower in tandem.
Why just 10 ASX 200 shares?
One analyst noted: "In the memory industry, the only number that matters is the second derivative." In other words, what the market cares about right now is how fast prices are rising.
Data shows that average NAND flash selling prices rose about 25% in the three months ended September, compared with a 70% gain in the prior quarter.
Kioxia: The price surge is starting to level off
Kioxia expects operating profit of 2 trillion yen (about $12.7 billion) this quarter, far below the market's 2.35 trillion yen estimate.
The just-completed September quarter was still stellar: operating profit surged 22-fold year-over-year to 1.99 trillion yen, in line with expectations; revenue was about 2.48 trillion yen, up 40% quarter-over-quarter. The company also paid an interim dividend for the first time, at 90 yen per share.
The trouble lies in the next quarter. Based on the above analysis, the 2 trillion yen guidance implies nearly zero quarter-over-quarter operating profit growth for the December quarter, versus 57% growth in the September quarter, while consensus had originally factored in about an 18% increase. Bloomberg's Takashi Mochizuki analyzed that Kioxia's outlook suggests the unprecedented price surge of the past year or so is beginning to flatten out.
In other words, prices are still rising, but at only about one-third the pace of three months ago. For stocks priced on the assumption that "the curve only gets steeper," that is enough to constitute a bearish signal.
Customers are also starting to feel the pinch. According to media reports, Kioxia executives have warned against excessive price hikes to avoid alienating customers. Intel on Friday projected PC shipments would fall about 12% this year and another 10% in 2027, citing "constrained memory supply" as one reason; the company blamed an "unexpectedly severe PC correction" on memory prices, sending its shares down 25% in pre-market trading.
The selloff spread quickly. JPMorgan's market intelligence team said the memory ETF (DRAM) fell 5.6% in pre-market trading, as concerns over AI monetization resurfaced and the entire semiconductor sector came under pressure. Just two days earlier, index futures were rallying on "SK Hynix-driven memory mania."
Kioxia's own stock had already fallen about 60% from its June high ahead of the earnings. Goldman Sachs' Jay Narain noted that even so, its cumulative return since its December 2024 IPO still stands at 2,400%.
SanDisk: Beat the market, missed the buy-side
On the numbers alone, SanDisk had a solid quarter. According to Goldman Sachs' TMT trading desk, SanDisk reported revenue of $11.03 billion, above the market's $10.74 billion estimate; gross margin of 85.1%, slightly above the market's 84.9%; and non-GAAP earnings per share of $49.51, above the market's $46.73 estimate.
The problem lies in the details of the guidance. SanDisk's next-quarter revenue guidance midpoint of $12.4 billion and non-GAAP EPS of $55 to $57 topped consensus estimates of $12.08 billion and $52.94, but fell well short of Goldman Sachs' forecasts of $13.55 billion and $59.71. The analysis suggests Goldman's numbers roughly represent the buy-side's private "whisper expectations" — the level institutional investors were truly anticipating.
Management was quite optimistic about the data center business. SanDisk said data centers already account for about half of industry bit demand, up from roughly 20% in 2020; the company expects KV cache (the cache storing intermediate computation results during large-model inference) to make up about 35% of the AI data center market by 2030, and data centers to account for more than 55% of the NAND market by 2027.
Management also said multiple customers "had previously underestimated their NAND needs," and SanDisk would supply at "renegotiated higher prices." As for how much higher, Kioxia — which shares a wafer fab with SanDisk — just provided the answer: far less than before.
This scene already played out once in August, when SanDisk similarly beat across the board and the stock still fell. Goldman Sachs analyst Jim Schneider's earnings review shows long-term agreements now cover about 50% of SanDisk's planned bit capacity for fiscal 2027 and 65% for fiscal 2028, unchanged from August, despite signing two more deals in the interim (10 agreements with 8 customers to date).
Long-term agreements set price floors and provide a buffer. But the analysis notes this means half of next year's capacity will still float with contract market prices — and Kioxia just explained which direction the contract market is heading.
Schneider remains bullish. He believes the NAND market has "very limited incremental supply for the foreseeable future," raised his fiscal 2026 to 2028 EPS estimates by about 7%, and noted the company still has $10.5 billion remaining in buyback authorization. He wrote Thursday evening: "We expect the stock to rise modestly after strong quarterly results." That call lasted only until 5:54 AM Friday.
Cycle turning point, or just a breather?
NAND has two prices: spot prices are transaction prices in the immediate market and react quickly; contract prices are periodically renegotiated between manufacturers and major customers and adjust with a lag. The above analysis pointed out as early as June 25 — the day the memory trade peaked — that spot prices had stopped rising since March. Since then contract prices have risen for another two quarters, and the time gap between the two is now narrowing.
Supply is still increasing. Kioxia plans to invest more than 5 trillion yen with SanDisk in Japan over the next six years to expand capacity, with some funding to come from an ADR listing in the US next year that could raise at least $10 billion. Micron is building a $24 billion NAND plant in Singapore; YMTC has captured 13% of the global NAND market, on par with SanDisk; DRAM leader CXMT also entered the flash market in September.
Samsung's NAND business also fell short of expectations. Goldman Sachs' Giuni Lee called its NAND profit "slightly below our expectations (both bit shipments and average selling prices came in slightly lower)."
Memory price increases have already passed through to PCs, phones and servers. Goldman Sachs' Rich Privorotsky noted that Intel's PC business is shrinking because "memory inflation is driving up hardware costs." Slowing NAND price increases is good news for CPI and PC makers, but bad news for memory stocks that have been priced on a continued price-hike narrative.
Bears argue that memory is fundamentally a cyclical industry, yet over the past year it convinced itself it was structural. Spot prices peaked in March, contract price gains slowed from 70% to around 25%, Kioxia guided for flat profits while pouring 5 trillion yen into capacity expansion, and it is cutting shipments because its biggest buyer can't afford the chips. Bloomberg also reports that big tech's $750 billion in AI spending is colliding with slowing core business growth. Many investors believe the hyperscalers that were supposed to absorb this new capacity may also start driving harder bargains.
Bulls counter that a roughly 25% quarterly gain is still a rare bull market, data center demand is structural, and Kioxia's management may simply be deliberately conservative.
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