Memory giant SanDisk’s (SNDK) Aug. 5 earnings report came with a difficult question hanging over the stock.
After what’s been a monumental surge in NAND pricing and profitability, how much longer can it keep this up?
As it has for the past several quarters, SanDisk blew past top- and bottom-line estimates, but Bank of America focused on something much more important.
Even though investors have treated memory stocks as mostly cyclical trades, BofA came out of the quarter with greater conviction that Sandisk’s current earnings power will prove a lot more durable than expected.
Why does Bank of America still see major upside in Sandisk?
In a note shared with me, Bank of America remained bullish on SanDisk stock post-earnings, reiterating its Buy rating and keeping a $2,500 price target, implying 85.1% upside from the bank’s $1,350.5 reference price.
In addition, that price target is based on a 10-times calendar-2027 earnings of $255 per share, a multiple BofA feels is in line with global memory peers, as SanDisk should generate comparable bottom-line numbers.
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At the core of BofA’s argument is that SanDisk’s earnings base is getting larger and a lot more durable.
For Micron, BofA analysts estimate a similar ramp-up at $140.24 in fiscal 2027 adjusted earnings per share.
At its reference share price, SanDisk trades at just 5.8 times BofA’s fiscal-2027 earnings estimate and 5.4 times fiscal-2028 earnings. That means investors still aren’t convinced by the longevity of today’s extraordinary NAND profitability.
That skepticism isn’t hard to imagine because memory has typically been highly cyclical.
However, relentless AI demand, growing storage needs, and rising enterprise SSD adoption are expected to keep demand elevated.
Its Q4 results strengthened that argument even more.
Sales surged to $8.97 billion, up 51% sequentially and above Sandisk’s $7.75 billion to $8.25 billion guidance. About two-thirds of that sequential growth was due to higher pricing, with the remainder attributable to higher bit shipments.
Gross margins jumped to 84.6%, up from 78.4% in the previous quarter and comfortably above the company’s 79% to 81% guidance.
Supply remains tight, and strong demand is enabling the memory giant to extract much more revenue from its sales. Consequently, that operating leverage explains why BofA sees fiscal-2027 EPS jumping 229% to $233.85 as revenue rises 160% to $52.6 billion.
And the momentum doesn’t appear to be stopping anytime soon.
SanDisk guided for Q1 fiscal 2027 revenue of $10.3 billion to $10.8 billion and EPS of $44 to $46, while gross margin is expected to remain exceptionally high at 83% to 85%.
Put simply, BofA sees little evidence that its pricing or profitability has peaked.
SanDisk is trading more attractively than Micron
Micron (MU) and SanDisk have dominated the AI memory space, but despite posting similar gains, they are trading very differently.
For perspective, Micron was recently trading around $897, while Sandisk closed Aug. 6 at $1,258.58.
In terms of performance, according to Seeking Alpha data, SanDisk emerged as the bigger winner over the past year, boasting a 430.2% year-to-date gain and a staggering 2,899.5% one-year return.
On the flip side, Micron gained 209% year to date and 711.6% over one year. Over nine months, SanDisk is up 506%, nearly double Micron’s 270.2%.
However, things have taken a turn for the worse over the past month.
SanDisk is down 27.9%, versus a 10.5% decline for Micron, and is holding up far better during the recent pullback.
According to Seeking Alpha data, SanDisk is also trading at around 6 times forward earnings, compared with 12.3 times for Micron stock.
The same pattern appears in forward EV/EBITDA, which compares the company’s total market value, including debt, to its operating earnings. Sandisk trades at 4.99 times EV/EBITDA, compared with Micron’s 9.18 times.
What makes BofA think this NAND cycle could be different?
Another major area to consider is Sandisk’s growing New Business Model, or NBM, agreements.
It signed eight data-center and Edge customers, representing at least $93.9 billion of revenue at floor pricing. Moreover, the bank highlighted an impressive $91.1 billion in remaining performance obligations and $16.5 billion in financial guarantees associated with those agreements. The weighted-average duration is over four years.
This switches up the quality of SanDisk’s earnings visibility.
Traditionally, NAND manufacturers benefit greatly when supply is tight, but profitability can tank when producers add capacity and memory prices drop. Long-term agreements with minimum pricing, though, give SanDisk protection against that dynamic.
In addition, the scale is already immense.
BofA expects these agreements to cover more than 50% of Sandisk’s fiscal 2027 bits and nearly two-thirds in fiscal 2028, with margins around 80%.
That means the lion’s share of future production is tied to prearranged customer economics, rather than volatile future prices.
Also, we’re seeing a big change in the customer mix.
Data-center sales doubled sequentially to $2.98 billion, while Edge revenue increased 48% to $5.43 billion. Conversely, consumer sales fell 32% to $556 million.
Data centers accounted for 38% of SanDisk’s bits as we wrap up fiscal 2026, compared to just 12% one year earlier.
That supports the argument that AI inference is making NAND more indispensable. Moreover, SanDisk’s liquidity positioning adds a lot more color, with the company generating $7.1 billion in operating cash flow, repurchasing $4.5 billion of stock, and having $15.5 billion remaining for buybacks.
Additionally, BofA sees capex dropping to around 6% of revenue and free cash flow reaching $27.4 billion in fiscal 2027, backing up a durable cycle.
What could derail Bank of America’s bullish Sandisk call?
NAND pricing still remains the biggest risk.
Though SanDisk is benefiting from operating leverage, the situation could easily reverse if supply catches up with demand, especially as pricing remains critical to growth.
And although the NBM agreements offer protection through floor pricing, they don’t eliminate cyclicality, particularly for production outside those contracts.
On top of that, China remains another pressure point.
BofA flagged competition and capacity expansion from Chinese suppliers such as YMTC. If competitors aggressively add NAND supply, the pricing tailwind will fade away quickly.
Much of BofA’s long-term thesis is also based on AI.
Slower AI device adoption or SanDisk losing share in the enterprise SSD space would weaken two major pillars supporting the earnings forecasts.
Interestingly, BofA’s own estimates show SanDisk’s tremendous growth phase just can’t continue forever.
The bank lowered its fiscal-2028 sales forecast to $55.6 billion from $57.5 billion and cut its EPS estimate to $248.16 from $254.24. It then models fiscal 2029 revenue declining 8.5% and EPS falling 6.9%.
The key question for investors is whether these new contracts genuinely changed Sandisk’s cyclicality. If contracted pricing and AI-backed data-center demand continue to keep margins near current levels, today’s valuation looks unusually cheap.
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