Author:Rita
TideGuide Introduction
Morgan Stanley updated its research report on SanDisk on June 22, raising the target price from $1,100 to $1,750 and maintaining an Overweight rating. The reasoning is straightforward: AI inference demand is rewriting the rules of the NAND market, and cloud data center customers are price-insensitive, granting SanDisk pricing power. Coupled with new business model agreements locking in gross margins, the company's future profits are largely predictable.
Changing Demand Structure: AI Inference Reshaping the NAND Market
Following 64% quarter-over-quarter growth in Q4, SanDisk's Q1 cloud business growth further accelerated to 233%. This is driven by a change in demand structure. Cloud providers are paying a premium for AI inference's KV Cache (Key-Value Cache) and context window storage. Morgan Stanley's calculations show that cloud business already accounts for a significant portion of SanDisk's Q1 sales, nearly all driven by TLC (Triple-Level Cell) demand, as customers prioritize storage density and performance. These customers don't operate by consumer logic; they sign long-term contracts with locked-in prices, which genuinely supports gross margins.
SanDisk's launched NBM (New Business Model) agreements have already locked in over one-third of its bit shipments for FY27. These are mostly 3- to 5-year agreements with fixed prices or price collar structures. A key point: even at the floor price, these contracts can maintain around 80% gross margin. For comparison, SanDisk's gross margin was only 30.3% in FY25, rising to 69.2% in FY26e, and projected to hit 86.7% in FY27e. This improvement is sustainable. Morgan Stanley believes the company could eventually cover 70% to 80% of its shipments under NBM. Once that ratio is reached, the company's profits have a 'bumper.' Meanwhile, maintaining 80% gross margin at the floor price means high profits can be sustained even in a price war.
Supply-Side Pricing Power and Profit Resilience
The current tight NAND supply may persist for an extended period. During several industry cycles, overcapacity has repeatedly triggered price crashes. This time, with AI data center expansion accelerating, storage demand is far from saturated. By securing long-term contracts during this window, SanDisk can hedge a significant portion of cyclical risk. Morgan Stanley expects ASP (Average Selling Price) to continue rising through calendar year 2026, possibly extending into mid-2027. 40% to 50% of SanDisk's revenue comes from North America, with data centers already becoming the largest end-market. Against the backdrop of tight supply and high customer loyalty, pricing initiative lies with the supplier.
The company's target is 15% to 19% bit growth, achieved mainly through technology transitions (density improvements and process advancements) rather than capacity expansion. From FY25 to FY27, revenue is projected to grow from $7.355 billion to $48.826 billion, an increase of approximately 6.6x, with EPS rising from $2.74 to $14.73. The key behind these numbers is the quality of growth, not the speed. Growth stems from high-margin cloud business, not the low-price, thin-margin consumer market. The company just announced a $6 billion stock buyback plan, with management believing the current stock price is among the lowest valued in the semiconductor sector. Valuation-wise, Morgan Stanley's three scenarios are based on FY27 full-year EPS: 28x P/E for the base case corresponds to $1,750, 31x P/E for the bull case corresponds to $2,635, and 25x P/E for the bear case corresponds to $1,100.
Coexisting Catalysts and Risks
Upside catalysts are worth watching in several directions. Data center eSSD (Enterprise Solid-State Drive) penetration may exceed expectations, edge AI applications could drive NAND content growth, and investments in advanced technologies like HBF (High Bandwidth Flash) might start paying off. Downside risks include industry growth falling short of expectations, competitors increasing capital expenditure, SanDisk losing share in the data center space, and Chinese memory manufacturers like YMTC (Yangtze Memory Technologies Co.) continuing to gain market share.
Morgan Stanley's bullish thesis on SanDisk is built on three pillars: the structural demand shift brought by AI inference, gross margin protection locked in by NBM agreements, and persistent NAND supply tightness. The target price was raised from $1,100 to $1,750, corresponding to approximately 28x FY27e P/E. The forecast itself will be revised with earnings reports and customer feedback, but the logical framework is more valuable as a reference than the specific numbers.
Disclaimer
This article is TideResearch's compilation and interpretation of a third-party brokerage research report. The ratings, target prices, earnings forecasts, and related judgments cited in the article are the views of the respective analysts, representing only the stance of their affiliated institutions. They do not represent the views of TideResearch nor constitute any investment advice.
Please note three points while reading: 1. Target prices are analysts' expectations for the next approximately 12 months; they are forecasts, not promises, and will be repeatedly adjusted based on performance and market conditions. 2. Sell-side research reports are inherently bullish, and some covered companies may have investment banking relationships with the brokerage. 3. The value of a research report lies in its mainline logic and underlying assumptions, not in a single target price. Focus on the logic, not just the price.
There are risks in the market; decisions should be independent. This article should not be used as a basis for trading any securities.
Data Source: Morgan Stanley Research Report (Joseph Moore, June 22, 2026) · Company Financial Reports
TideResearch · TideResearch · June 2026
