SanDisk's latest earnings beat expectations, but Bank of America is doubling down on its bullish outlook, arguing that AI demand and new contracts could make the company's profits more resilient than investors expect
SanDisk's most recent earnings report has reignited debate over how long the memory chipmaker can sustain its extraordinary run. After a period of sharply rising NAND prices and record profitability, investors are questioning whether the cycle is peaking or if there's more room to run. Bank of America, however, is not backing down from its bullish stance. The bank reaffirmed its Buy rating on SanDisk and maintained a $2,500 price target, which implies significant upside from recent trading levels. This target is based on a 10-times multiple of projected 2027 earnings, a valuation Bank of America argues is justified by SanDisk's growing earnings base and its alignment with global memory peers.
SanDisk's fourth-quarter results provided fresh evidence for the bulls. Revenue jumped to $8.97 billion, up 51% from the prior quarter and well above company guidance. The majority of this growth came from higher pricing, with the rest driven by increased shipments. Gross margins soared to 84.6%, exceeding both the previous quarter and management's own forecast. Tight supply and robust demand-especially from AI and enterprise storage-are allowing SanDisk to command premium prices and deliver strong operating leverage. Bank of America projects that these dynamics could drive fiscal 2027 earnings per share up 229% to $233.85, with revenue climbing 160% to $52.6 billion.
Despite these gains, SanDisk's valuation remains relatively modest. At its reference price, the stock trades at just 5.8 times Bank of America's 2027 earnings estimate, compared to higher multiples for competitors like Micron. Over the past year, SanDisk shares have delivered a 2,899.5% return, outpacing Micron's 711.6% gain, according to Seeking Alpha data. Yet, recent volatility has hit both stocks, with SanDisk down nearly 28% in the past month. Even so, SanDisk trades at around 6 times forward earnings, while Micron fetches more than double that multiple. The same pattern holds for forward EV/EBITDA, with SanDisk at 4.99 and Micron at 9.18.
Contracted Revenue and Changing Cycles
One factor that could set this memory cycle apart is SanDisk's aggressive push into long-term New Business Model (NBM) agreements. The company has signed contracts with eight major data center and edge computing customers, locking in at least $93.9 billion in revenue at minimum pricing over an average duration of more than four years. These deals provide a buffer against the traditional boom-and-bust cycles of the memory market, where profits can evaporate quickly if supply outpaces demand. Bank of America estimates that these agreements will cover more than half of SanDisk's 2027 production and nearly two-thirds by 2028, with margins around 80%.
The customer mix is also shifting. Data center sales doubled sequentially to $2.98 billion, while edge computing revenue rose 48% to $5.43 billion. Consumer sales, by contrast, fell 32% to $556 million. As a result, data centers now account for 38% of SanDisk's total shipments, up from just 12% a year ago. This shift underscores the growing importance of AI and enterprise storage in driving demand for high-performance NAND memory. SanDisk's liquidity position remains strong, with $7.1 billion in operating cash flow last quarter, $4.5 billion in share repurchases, and $15.5 billion still authorized for buybacks. Capital expenditures are expected to fall to about 6% of revenue, while free cash flow could reach $27.4 billion in fiscal 2027.
Risks and Uncertainties
Despite the optimism, risks remain. The biggest is that NAND pricing could reverse if supply catches up with demand, especially for production not covered by long-term contracts. While NBM agreements offer some protection, they do not eliminate cyclicality entirely. Competition from Chinese suppliers such as YMTC could also pressure prices if capacity expands aggressively. Much of Bank of America's thesis depends on continued AI adoption and SanDisk maintaining its share in the enterprise SSD market. Any slowdown in these areas could undermine the company's earnings power.
Bank of America's own forecasts reflect some caution. The bank recently trimmed its 2028 sales and earnings estimates and now expects revenue to decline by 8.5% and earnings per share to fall by 6.9% in 2029. The durability of SanDisk's current profitability will depend on whether contracted pricing and AI-driven demand can offset the industry's historical volatility. For investors weighing the risks, the question is whether these new business models have fundamentally changed the memory market's cycle-or if the old patterns will reassert themselves.
For a broader look at how Bank of America is approaching memory chip stocks in the current environment, see this analysis of its long-term outlook on Micron's prospects: Bank of America's stance on Micron amid recent volatility.
SanDisk's Q4 2026 results showed revenue of $8.97 billion, a 51% sequential increase, with gross margins rising to 84.6%. The company's guidance for Q1 fiscal 2027 calls for revenue between $10.3 billion and $10.8 billion and earnings per share of $44 to $46, with gross margins expected to remain in the 83% to 85% range. These figures highlight the scale of recent gains and the company's confidence in near-term demand.
Long-term supply contracts, like SanDisk's NBM agreements, are designed to reduce earnings volatility by locking in minimum pricing and guaranteed volumes. While these deals can provide stability, they also introduce new risks if market prices fall below contracted levels or if customers seek to renegotiate terms. For investors, understanding the structure and limitations of such agreements is crucial when evaluating the sustainability of profits in cyclical industries like memory semiconductors.
