SanDisk Q2 Review: Blowout Results, Forward P/E 10x, Multi-Year Agreements—How Far Can SNDK Rerate?
$SanDisk Corp.(SNDK)$ 's FY2Q26 results and FY3Q26 guidance significantly exceeded both the company's own guidance and Wall Street expectations. But the bigger story is strategic: the company is signaling a shift from unit-led cyclicality toward price power, datacenter mix, and tighter contracting (multi-year agreements with prepayments).
Financial Snapshot
SanDisk delivered a sharp upside surprise in FY2Q26, driven primarily by pricing and mix rather than unit growth.
– Revenue: $3.025B (+31% QoQ, +61% YoY).
– Non-GAAP gross margin: 51.1%, far above the company’s prior 41%–43% outlook. Management attributed the beat mainly to higher pricing, with cost declines in line with expectations.
– Volume vs pricing: Bit shipments were only low-single-digit QoQ, while ASP per GB increased mid-30%—a clear signal that pricing was the dominant lever.
– Mix: Datacenter revenue was $440M, up 64% QoQ, outpacing other end markets.
Four Things to Watch
1. FY3Q's "high-margin" setup: fewer bits, tighter supply, much higher profitability
The most market-moving signal is not the FY2Q beat, but what the FY3Q guide implies about the underlying pricing regime.
FY3Q26 guidance : Revenue $4.4B–$4.8B, Non-GAAP GM 65%–67%, Non-GAAP EPS $12–$14.
– The company expects the market to be more undersupplied in Q3 than in Q2.
– Yet it also guides to mid-single-digit QoQ declines in bits.
– Despite lower bits, management guided to 65%–67% gross margin and $12–$14 EPS.
Taken together, the guide effectively says: pricing and mix must do more than compensate for unit softness. That is a materially different tape from a typical "volume-driven" NAND recovery and is why the guide reads like a regime change rather than a one-quarter spike.
Calculating based on a median EPS of $13, this implies Q3 net profit exceeding $2 billion, annualized at $8 billion. Based on the after-hours increase to a market cap of $90 billion, the current dynamic P/E ratio is around 11x.
2. Multi-year agreements + prepayments: a potential rewrite of NAND's contracting model
Management repeatedly framed AI-driven demand as a step change that is pulling customer behavior from quarterly negotiations toward multi-year agreements.
Crucially, the company outlined the key mechanics: term, price, volume, scope of business covered, and prepayments.
It also confirmed it has already signed and delivered on one agreement that includes a prepayment, and stated that several more are in progress.
Why this matters: Pricing strength can be cyclical, but contract structure can change the asset's valuation framework. If prepayments and multi-year commitments expand from isolated deals to a broader pattern, NAND cash flows can start to look less like a quarterly auction and more like a semi-contracted infrastructure input—raising visibility and potentially compressing earnings volatility.
3. Datacenter demand "optionality": internal exabyte outlook has been repeatedly revised up—and KV cache is not yet in the base case
Management disclosed that its internal view of 2026 datacenter exabyte growth has been revised upward across three forecast cycles to the high-60% range, and it noted that this earnings cycle did not assume further capex upward revisions in that outlook.
On NVIDIA's CES commentary around key-value (KV) cache, management said this demand is not yet included in the current demand numbers being discussed. The early sizing provided was notable: KV cache could add ~75–100 exabytes in 2027, and could roughly double the following year.
The implication is straightforward: the datacenter line may have embedded upside beyond the already-aggressive near-term margin guide, if these incremental AI inference/storage requirements begin showing up in orders and long-term agreements.
4. Supply-side lock-in: JV extension to 2034 strengthens availability, adds a longer-run COGS variable
SanDisk extended its JV arrangement with Kioxia to Dec 31, 2034 and disclosed a sizable commitment tied to manufacturing services.
– SanDisk agreed to pay $1.165B during calendar 2026–2029 for manufacturing services provided by Kioxia.
– The cost will be recognized through COGS over the next nine years.
Near term, this is best read as a move to secure supply certainty when the company expects a tighter market. Longer term, it becomes part of the debate over through-cycle margins, because that multi-year COGS recognition path will sit underneath the margin profile even after the tightness normalizes.
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