SanDisk Reports Record Earnings, but Shares Fall 8% After Hours

Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

After hours on Wednesday Eastern Time, flash memory giant SanDisk reported its fourth fiscal quarter and full fiscal year results ended July 3.

Financial results show that in this fiscal quarter, SanDisk's revenue reached $8.97 billion (market expectation: $8.48 billion), surging 372% year-over-year and increasing 51% sequentially; non-GAAP adjusted earnings per share (EPS) amounted to $39.25, 135 times higher than the same period last year ($0.29) and up 68% sequentially, exceeding market expectations by nearly 10%; adjusted gross margin reached 84.6%, a substantial increase of 58.2 percentage points year-over-year.

Looking at the full year, SanDisk's fiscal year 2026 was also remarkable. Total revenue reached $20.25 billion, a 175% year-over-year increase; net income under GAAP was $11.43 billion, and non-GAAP earnings per share for the full year reached an impressive $70.88. Recall that in fiscal year 2025, SanDisk was operating at a loss of $1.64 billion—such a dramatic turnaround within a single year underscores the powerful synergy between the NAND storage cycle and AI demand.

However, the capital market did not respond positively to this earnings report. Before the report was released, SanDisk's closing price had already fallen by 5.4%; after the report, it dropped another nearly 8% in after-hours trading, standing at $1,243 as of 11:00.

Why didn’t the market reward such a “record-breaking” earnings report? The underlying logic is similar to our analysis of Hynix’s recent quarterly earnings (see Why Did Hynix’s Most Profitable Quarter Still Fall Short of Expectations?). For major storage companies like this, investors are no longer just focused on whether earnings grow, but whether growth can continue to exceed expectations that have already been significantly raised.

There is another issue distinct from Hynix, stemming from the incomplete guidance. SanDisk provided a revenue guidance range of $10.3 billion to $10.8 billion for the next fiscal quarter, with a midpoint of $10.55 billion, compared to the market’s previous expectation of $11.16 billion—a difference of approximately 5.5%. In short, the market is not rejecting SanDisk’s already delivered performance, but rather expressing concern over whether its future growth rate can continue to meet higher expectations.

By breaking down SanDisk's revenue structure for this quarter, we can more clearly see the qualitative transformation the company is undergoing.

As emphasized by SanDisk CEO David Goeckeler, the data center business has become SanDisk’s undisputed growth engine. Data center revenue in the fourth fiscal quarter reached $2.98 billion, surging nearly 13-fold (1298%) year-over-year and doubling quarter-over-quarter (103%), with its share of total revenue rising from approximately 11% a year ago to 33%. For the entire fiscal year 2026, data center revenue skyrocketed 437%, and management has explicitly positioned it as a “key growth pillar.” Amid a surge in demand for AI servers and high-performance computing storage, SanDisk is clearly reaping the benefits of this infrastructure investment boom.

Edge computing business remains SanDisk's largest revenue source, generating $5.43 billion this quarter, a 392% year-over-year increase and a 48% sequential growth. This segment primarily serves enterprise and end-device markets, with substantial scale and steady growth, forming the foundation of SanDisk's business.

The only relative weakness appeared on the consumer side. This quarter, consumer business revenue amounted to just $556 million, a slight year-over-year decline of 5% and a significant sequential drop of 32%, far below the market expectation of $874 million. Weak demand for traditional consumer electronics and extended upgrade cycles for PCs and smartphones have made this segment the most noticeable drag on the earnings report. However, from a strategic perspective, SanDisk is proactively optimizing its customer base by shifting focus toward higher-value data center and enterprise markets; the contraction in consumer business is, to some extent, a symptom of this transition.

Notably, SanDisk management devoted considerable time on the earnings call to explaining the strategic significance of its long-term agreements for the "New Business Model" (NBM).

In the NAND industry, supply and pricing have traditionally been negotiated on a quarterly basis, with significant cyclical fluctuations. SanDisk disclosed that, following the announcement of five BNM long-term agreements during the April earnings season, this quarter’s earnings report revealed another five NBM long-term agreements, including three new contracts and two expansions or upgrades of existing agreements. The related orders will cover supply for multiple future years, with over half of the supply for fiscal year 2027 already secured, and approximately two-thirds of the supply for fiscal year 2028 also arranged.

David Goeckeler stated that he aims to "enhance business predictability and cyclical resilience by entering into long-term agreements, breaking free from the industry's historical cycle of boom and bust." From an industry perspective, this is undoubtedly the correct long-term strategy—locking in capacity, smoothing price volatility, and deepening relationships with major clients; however, in short-term trading, long-term agreements also mean locking in a portion of price flexibility, and investors may worry that the company has "sold too cheaply" by securing orders in advance during the peak of a price uptrend.

The $14 billion stock buyback plan disclosed alongside the earnings report is another notable signal. Combined with the remaining authorized amount, SanDisk’s total outstanding buyback authorization now reaches $15.5 billion. For a company that experienced a 47% stock price plunge in July and lost over $150 billion in market value, such a large-scale buyback demonstrates management’s confidence in its cash flow and sends a signal to the market that the current stock price is attractive.

However, buybacks are generally a medium- to long-term factor and are difficult to use as a hedge against selling pressure caused by disappointing guidance. Especially during the earnings announcement window, trading logic will still primarily prioritize the core question of whether revenue guidance has been raised.

Returning to the forward guidance most concerning the market, SanDisk expects revenue of $10.3 to $10.8 billion for the first quarter of fiscal year 2027, with a midpoint of $10.55 billion, representing approximately 359% year-over-year growth. This figure itself is not poor—sequential growth continues, and year-over-year growth remains high—but the market had already priced in this expectation too fully.

A more subtle signal comes from the gross margin. In the fourth fiscal quarter, SanDisk's adjusted gross margin reached a record high of 84.6%, but the company's guidance for the next fiscal quarter is a range of 83% to 85%, with a midpoint of approximately 84%. Although still at an extremely high level, there are no signs of further expansion, instead suggesting a sense of "peak and plateauing." For investors accustomed to SanDisk consistently breaking through gross margin ceilings over recent quarters, this mindset of "flat equals negative" is further amplified in today's market environment.

The EPS guidance range of $44 to $46, with a midpoint of $45, is largely in line with market expectations and offers no surprise. After a “record-breaking” earnings report, the market was expecting an even more extraordinary guidance—instead, SanDisk delivered merely “solid but normal.”

Yesterday, while compiling Arthur Hayes's new article, I came across this statement: "Invest in what is truly traded, not growth itself, but the acceleration of growth."

In other words, what the market is really focused on is the second derivative—whether growth is accelerating or decelerating.

From this earnings report, SanDisk's fundamentals have not shown significant weakening. Whether it’s record quarterly revenue, sustained high gross margins, or data center business becoming a new growth pillar, the company is benefiting from the NAND cycle recovery and structural changes driven by AI infrastructure investment. However, the capital market’s focus has long shifted from “whether performance is strong” to “how further growth can be achieved.”

Over the past year, the storage sector has undergone a significant revaluation. On one hand, the construction of AI data centers has driven growth in demand for high-performance storage; on the other hand, supply contraction in the NAND industry and rising prices have propelled profit margins for related companies to sharp increases.

Under this context, the market's valuation of SanDisk already reflects not only its current profitability but also anticipates continued acceleration in growth over the next several quarters. Therefore, when the company provided guidance for the next quarter that maintained high growth without further upward revision, the market reacted with even greater sensitivity.

This is also the core contradiction in SanDisk’s latest earnings report — the fundamentals remain strong, but expectations have already outpaced the results.