SanDisk’s second quarter report was a blowout on all accords, with the company reporting an impressive 31% QoQ growth for revenue to $3.03 billion and a tremendous 408% QoQ growth to $6.20 in adjusted EPS, capitalizing on strong demand and strong pricing from undersupply dynamics.
However, the guide was even more impressive, with SanDisk forecasting $4.4 to $4.8 billion in revenue, up 52% QoQ at midpoint, and adjusted EPS more than doubling QoQ to $12 to $14, roughly 200% above consensus at midpoint.
To put in perspective just how large of a beat this was, SanDisk was not expected to see this level of revenue or EPS at the end of 2027 – consensus for the Dec 2027 quarter was $4.19 billion and $9.29 in EPS heading in to this report.
There were a handful of important comments from management in the call regarding the NAND market, that it will be even more undersupplied in fiscal Q3, while data center growth forecasts raised yet again.
NAND Market Remains Critically Undersupplied
SanDisk attributed its revenue and margin over-delivery versus its guidance to strong pricing during the quarter, a byproduct of the tightening supply-demand environment. Management offered some commentary on supply-demand dynamics for next quarter and for 2026, which points to strong pricing growth remaining a tailwind as supply is expected to lag demand by a widening margin.
Management stated: “In the December quarter, we experienced a clear and significant improvement in market conditions across end markets, which led to higher pricing."
SanDisk noted that it was unable to fulfill customer demand in Q2, yet management added that it anticipates “the market to be more undersupplied [in Q3] than it was in the second quarter” with bit growth down mid-single digits QoQ compared to a mid-single digit increase QoQ in Q2.
Management also added that they expect “customer demand well above supply beyond calendar year 2026, which requires careful allocation planning and alignment with our customers.”
This is rather important as analysts were currently expecting NAND pricing to peak in the calendar Q1 quarter on a QoQ basis, yet ASP growth may end up higher for longer considering the supply-demand imbalance is widening.
For example, analysts were projecting NAND ASPs to accelerate to the low-20s to low-30s QoQ in calendar Q1 and then slow to the mid-teens in calendar Q2, yet a widening imbalance could potentially push prices up to 40% QoQ and 20% QoQ, respectively.
For SanDisk, this could have strong implications for both revenue and earnings, as the company is showing revenue growth at a multiple of this QoQ growth in prices. For example, SanDisk’s revenue was up 21% QoQ last quarter, or 3-4X estimated ASP growth, while this quarter revenue rose 31% QoQ, or 1.5-2X estimated ASP growth.
For fiscal Q3 (CQ1), the company’s 52% QoQ guide is ~1.5-2.5X estimated ASP growth, meaning that if this trend persists and ASP growth estimates move materially higher, to maybe ~20% for CQ2, this could roughly project 30% QoQ growth for SanDisk in its fiscal Q4, or potentially well above $6 billion.
Moving back to the topic of supply, there was one major factor that management highlighted that could somewhat hinder its ability to continue growing at a multiple of QoQ ASP growth – long-term agreements. SanDisk explained that it is looking to evolve from quarterly supply negotiations (as has been typical with NAND historically) to multi-year agreements with firmer supply and pricing commitments. This in part stems from data center customers offering visibility into 2026-2028 demand needs and some even out to 2030, requiring a “substantial” amount of exabytes, with SanDisk seeing LTAs as an avenue to offer “confidence in supplying that level of demand on a sustained basis.”
Management is aiming to have supply plans aligned with “predictable long-term demand at current and forecasted market prices,” hinting that they will look to align these LTAs to capture potential price increases through the rest of the year to minimize lost revenue that could be captured under quarterly deals. It is a possible two-edged sword though, in that it does lock in supply prices over quarters to years, insulating SanDisk from when prices (ultimately) revert lower, but also potentially capping price-driven growth as prices would then be locked in and not shifting quarter-to-quarter.
SanDisk disclosed that it signed and closed one LTA in the quarter, opting not to disclose terms other than stating that it included a pre-payment component, with several more LTAs in the queue.
Data Center Growth Forecasts Accelerating Rapidly
SanDisk once again upped its data center exabyte growth forecast, this time to a larger degree, with management going so far as to hint that this updated forecast may still be too low.
As we had mentioned in our analysis two weeks ago, SanDisk: Shares Up 559% In 2025 On NAND Flash, Enterprise SSD Tailwinds, SanDisk explained that in fiscal Q4, data center exabyte growth expectations were in the mid-20% YoY range, but by Q1 were in the mid-40% range.
Now, SanDisk explained that they are now “looking at high 60% exabyte growth in that market for '26,” a more than 20 point raise, and yet this increased outlook “doesn't include any CapEx raises on this earnings cycle.”
To note, Meta already provided a rather large capex increase, guiding initially for $115-135 billion in capex for the year, up 73% YoY and well ahead of estimates for ~$108 billion. Microsoft did not provide a guide, yet quarterly capex was $37.5 billion, ahead of estimates for $34.3 billion, and Amazon and Alphabet have yet to report, though if its peers are any indication, it’s that capex will exceed estimates once more.
This accelerating forecast for data center exabyte growth ties into NAND’s increasing role in AI infrastructure, as we had recently outlined with KV cache requirements and Nvidia’s new inference memory platform. On this exact topic of Nvidia’s KV cache discussion and TB of content per GPU, management explained that “none of that demand is in the numbers we're talking about, demand numbers at this point,” but “our initial looks at it when we look at, let's say, '27 demand, we think that's roughly maybe 75 to 100 additional exabytes. And then a year after that, you can double that. So it is a significant amount of demand.”
For context, 75-100 EB of demand in 2026 would account for roughly 6-8% of the entire flash market, while doubling that to 150-200EB in 2027 would correspond to 10-13% of the market – a significant new demand driver.
As a result of the increasing role of NAND and enterprise SSDs in AI inference applications, and expectations for a “meaningful increase in NAND content per deployment,” management expects data center revenue to “grow meaningfully in both the near and long term.”
Data center revenue witnessed a sharp acceleration in the quarter with revenue up 64% QoQ, up from 26% QoQ in fiscal Q1, with management expecting this to accelerate in the back half of the year with a “substantial step-up next quarter.”
Discussions on Margins, Opex
Because NAND has traditionally been very cyclical, analysts questioned about where true cycle gross margins will land considering the expectations for NAND to become more secular in nature. Unpacking the true cycle margins peak to trough is important considering pricing power with strong data center growth and other factors such as the BiCS8 ramp and lower per-bit costs are tailwinds to margin expansion, yet when supply-demand tightness begins to ease and prices reverse, margins will likely face stiffer headwinds.
Q, Asiya Merchant, Citigroup:
“How are you thinking about your true cycle margins, gross margins, seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here structurally?”
A, Luis Visoso, SanDisk CFO:
“I think the way I would answer your question about through-cycle margins is similar to where David left it, which is in a high CapEx, high R&D industry or company. Frankly, 35% [gross margin] is not where we would like to be, right? So we're not going to give you a new number today. But clearly, that's not where we want to be. What I'll tell you is this is the first quarter, right, that we are above 35% with 51%. We're guiding, call it, midpoint of 66%. So we're making progress and we're getting to a place where we believe we can justify the CapEx. We can justify the investments in R&D that the business requires.”
Management also explained that the current opex run rate – $476 million for GAAP opex in Q2 and to ~$514 million guided for Q3 at midpoint, and $413 million for adj opex and $460 million guided for Q3 – will not move significantly higher as revenue scales: “a long way of saying the level of spending we had last quarter, what we're guiding this quarter, those are kind of more sustainable levels for now.”
This allows for a rough view of where true cycle earnings power could lie. Should the true cycle gross margins sit at around 35%, despite management aiming for higher, this offers a rough view into where true cycle earnings could sit. At a ~$16 billion revenue base (~4% above current FY26 consensus at $15.46 billion on Jan 30), a 35% gross margin with ~$1.7 billion in adjusted opex and roughly $600 million in additional expenses would project true cycle adjusted earnings around ~$21.
Management also discussed the following: “We're literally able to trade out the lowest margin business for now the highest margin business, and that provides a significant tailwind to the business as well.”
Financials
Revenue Showing Sharp Acceleration into Q3
SanDisk reported $3.03 billion in revenue in Q2, beating estimates by ~12.5%, with SanDisk attributing the growth to higher prices across its three segments with prices strengthening through the quarter. Revenue growth accelerated more than 38 points to 61.2% YoY, while sequential growth accelerated nearly 10 points from 21.4% QoQ in Q1 to 31.1% QoQ in Q2.
Q3’s guide was a blowout versus consensus, with SanDisk forecasting $4.4 to $4.8 billion in revenue, more than 58% ahead of consensus for just $2.91 billion. This also points to a significant 110 point acceleration to 171.3% YoY at midpoint and 21 points to 52% QoQ. Initial estimates for fiscal Q4 point to 191% YoY growth and 20% QoQ growth from Q3’s midpoint to $5.53 billion.
For the full year, current consensus points to 110% YoY growth to $15.46 billion, though this is subject to change as revisions have only just now begun to roll in.
Data Center Growth Accelerates 38 Points to 64% QoQ
SanDisk’s data center revenue growth was robust in Q2 with the company reporting growth of 76% YoY and 64% QoQ to $440 million, accelerating 86 and 38 points respectively. Data center still accounts for a smaller portion of overall revenue at almost 15% in the quarter, though this is up from 12% last quarter.
Management said they are seeing strong adoption of data center products from cloud hyperscalers, enterprise and edge data centers, and system integrators. SanDisk completed qualification of its PCIe Gen5 high-performance TLC SSDs at a second hyperscaler in the quarter, while two major hyperscalers are advancing with qualifications for its BiCS8 QLC ‘Stargate’ products, set to begin shipping in the next several quarters, providing another tailwind for growth.
Perhaps more importantly was management’s commentary about sequential growth through the second half of the fiscal year – we had outlined previously that management had stated in Q1 that they foresee sequential growth through the year with faster growth in 2H.
As we had mentioned above, management said that they believe data center growth will accelerate from here with a substantial step-up in Q3. Assuming this means a similar mid-30s acceleration to ~100% QoQ, this would project data center revenue to be ~$880 million in Q3, or more than 3X higher than where it entered the year. This also means reaching a $1 billion revenue quarter for the data center is increasingly plausible by Q4.
Looking at SanDisk’s other segments, edge revenue was up 21% QoQ and 63% YoY to $1.68 billion, with demand meaningfully exceeding supply with management citing PC replacement and AI adoption as driving higher storage content per device. Edge growth did decelerate from 26% QoQ in Q1 though YoY growth accelerated 33 points.
Consumer revenue was up 39% QoQ and 52% YoY to $907 million, accelerating from 27% YoY and 11% QoQ in Q1. SanDisk said product mix shifted toward higher-value configurations and premium products, supporting content growth.
Margins See Strong Expansion
SanDisk saw strong gross margin expansion in Q2 stemming from higher prices, while unit cost reductions served as an operating margin tailwind.
Q2 GAAP gross margin was 50.9%, up 21.1 points QoQ and 18.6 points YoY, while adjusted gross margin was very similar at 51.1%, up 21.2 points QoQ and 18.6 points YoY.
GAAP operating margin was 35.2%, up 27.6 points QoQ and 24.8 points YoY, while adjusted operating margin was 37.5%, up 26.9 points QoQ and 25.1 points YoY. Operating margins also benefitted from a (7%) QoQ decline in opex, which management said was due to a change in how they sell products: “basically, we're now moving into charging for our qualification units. So in the past, we used to record costs as they were incurred, right? They were period cost. And this is a nonrecurring element, which is a onetime gain as we move from period cost into inventories as we're now selling these qualification units.”
GAAP net margin was 26.5%, up 21.6 points QoQ and 21 points YoY, and adjusted net margin was 32%, up 24.2 points QoQ and 20.5 points YoY.
For Q3, SanDisk projected margins to expand further, guiding GAAP gross margin to be 64.9% to 66.9%, up 15 points QoQ and 43.4 points YoY at midpoint, while GAAP operating margin was implied to be 54.7% at midpoint, up 19.5 points QoQ. Adjusted gross margin was guided to be 65% to 67%, with adjusted operating margin guided to be 56% at midpoint.
Earnings
SanDisk reported a large beat on EPS in Q2, though arguably the Q3 guide could be one of the largest beats in tech, with management forecast Q3 adjusted EPS 200% above consensus estimates. Rough estimates for Q4 show EPS potentially moving even higher from Q3’s strong growth.
GAAP EPS was $5.15 in Q2, up 587% QoQ and 615% YoY, and nearly $2 ahead of consensus estimates for $3.20. Adjusted EPS was $6.20, beating the $3.78 estimate by 64% and representing 408% QoQ and 404% YoY growth.
For Q3, management guided for $12 to $14 in adjusted EPS, up 110% QoQ, and coming in 200% above consensus estimates for $4.33 at midpoint. Based on current estimates for ~20% QoQ growth to $5.53 billion and slight margin expansion of 3-5 points, this would project Q4 adjusted EPS in the $19.50-$20.50 range.
This assumption would take FY26 adjusted EPS up to ~$40.40, at the midpoint of Q3 and Q4’s rough estimate, or growth of ~1,250% YoY. Current consensus points to $34.92 in adjusted EPS, up ~1,068% YoY.
Cash Flows and Balance Sheet
Cash flow margins improved significantly, and SanDisk paid down a substantial amount of debt in the quarter.
- Operating cash flow was $1.02 billion, up 973% YoY and for a 33.7% margin, QoQ and 28.6 points YoY.
- Free cash flow was $980 million and adjusted FCF was $843 million for a 27.9% margin, up 8.5 points QoQ and 23 points YoY – note the margins are for adjusted FCF as it includes expenses related to the Flash Ventures JV with Kioxia for manufacturing. Management commented that any material increases in capex would “require high confidence that demand at attractive pricing levels is durable over a several year horizon,” suggesting that SanDisk will not preemptively increase capacity if it does not believe pricing will support strong profitability.
- Cash was $1.539 billion, and debt was $603 million, down from $1.85 billion two quarters ago as SanDisk paid off another $750 million in debt this quarter.
- Inventories were $1.97 billion, up marginally from $1.91 billion in the prior quarter.
Valuation
For a quick update on the valuation, shares are trading at 5.7x forward PS on the current $15.46 billion consensus, while on the bottom line, shares are trading at 17x forward PE on the current consensus of $34.92, or 14.8x on our estimate for $40.40.
Conclusion
SanDisk reported a strong Q2 with Q3 showing meaningful acceleration across revenue and earnings, with the company riding strong demand and strong ASP tailwinds. QoQ growth is expected to accelerate for the data center segment in Q3 with the back half being much stronger, per management, while overall revenue growth was guided to 52% QoQ for Q3, the highest among the AI semiconductor names that we track.
Although we don’t expect memory stocks to go up in a linear fashion, it’s hard to imagine an outcome where 2026 is not dominated by this subsector of AI stocks. What the I/O Fund is trying to wrap our heads around, is that we are seeing Blackwell and Blackwell Ultra impact, whereas incoming Rubin supports a sustained trend for NAND. Management commentary around the KV cache—something we outlined in our Q1 2026 Top 15 report—was particularly notable, and perhaps the most important takeaway from the call was the expectation that this acceleration continues beyond next quarter.
Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund do not own shares in SNDK at the time of writing and may own stocks pictured in the charts.
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