Barclays has upgraded its rating on SanDisk Corp. (SNDK.US) from "Hold" to "Overweight," significantly raising its price target to $2300. Notably, SanDisk's stock failed to sustain its pre-market gains after the opening bell. At the time of writing, the stock was down over 2.6%, trading at $1548.9.
In a report, Barclays analyst Tom O'Malley stated that within the current AI supply chain, the memory and storage sector stands out as one of the most attractive segments, second only to AI accelerator chips. He indicated that with the continued surge in AI demand, the global supply-demand imbalance in the memory industry is expected to persist at least until 2027.
O'Malley noted that the industry is undergoing structural changes that are significantly enhancing the profitability stability and pricing power of memory manufacturers for the coming years. Analysis points out that the memory sector has historically been viewed as highly cyclical, with sharp price fluctuations and unstable earnings. However, rapid growth in demand from AI servers, High Bandwidth Memory (HBM), data centers, and enterprise storage is now transforming the industry's fundamental dynamics.
O'Malley expressed particular optimism regarding SanDisk's innovative approach to contractual models. He described SanDisk as one of the "most aggressive and structurally innovative" companies in the sector. According to information disclosed in a recent earnings call, SanDisk is actively advancing a "new business model" on a large scale. Under this model, the company enters into long-term supply agreements with customers to secure future supply and demand stability for both parties. Some contracts extend as far as 2031 and include commitments for quarterly purchase increases.
O'Malley revealed that the three contracts SanDisk signed in the most recent quarter alone could generate a minimum of approximately $42 billion in revenue for the company. Furthermore, these contracts come with financial guarantees exceeding $11 billion. A portion of this involves customer prepayments. SanDisk had already recognized around $400 million in prepayments on its balance sheet in the third fiscal quarter. Another portion is supported by financial instruments provided by third-party financial institutions.
O'Malley stated that this long-term contract model, which locks in supply and demand relationships, has become one of the most favored forms of collaboration within the AI storage ecosystem. For customers, it means securing future supply of critical storage chips in advance. For SanDisk, it translates to significantly enhanced revenue visibility and a more stable market outlook.
He further argued that this contract structure is fundamentally altering the business model of the entire memory industry. "It allows memory manufacturers to plan capacity and operations more strategically while significantly bolstering the sector's defensive capabilities during downturns."
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