Author:Bao Yilong
SanDisk and Western Digital both reported strong quarterly results, but Goldman Sachs believes that excessively high market expectations have prevented the companies' stock prices from benefiting from the impressive performance, anticipating that both stocks will face downward pressure following the earnings release.
According to Zhui Feng Trading Desk, on August 5th, Goldman Sachs' James Schneider team issued two reports commenting on the latest earnings of SanDisk and Western Data. The core contradiction currently facing the storage industry is not a deterioration in fundamentals, but rather that market expectations have already run too far ahead of reality.
Both companies delivered impressive quarterly report cards, with revenue, gross margin, and EPS exceeding expectations to varying degrees. However, when expectations themselves already embed assumptions of "perfect execution + sustained outperformance," any guidance that returns to a normal trajectory will be interpreted by the market as a negative signal.
For investors, there is a need to be cautious about sentiment-driven pullback risks for both stocks in the short term. Goldman Sachs also pointed out that, considering the high overlap in end-market exposure between Micron and SanDisk, it is expected that the negative reaction to SanDisk's earnings report will spill over to Micron, and investors should keep an eye on Micron's short-term stock price movement.
Western Digital's fiscal Q2 revenue ending June 2026 was $3.747 billion, essentially in line with Goldman Sachs' forecast of $3.763 billion and the Wall Street consensus of $3.714 billion, representing year-over-year growth of 43.8%.
Gross margin was 54.4%, higher than Goldman Sachs' forecast of 52.4% and the market consensus of 51.9%, exceeding by approximately 200 to 250 basis points. Non-GAAP EPS was $3.56, higher than Goldman Sachs' forecast of $3.43 and the market consensus of $3.35, exceeding by approximately 4% to 6%.
Regarding Q3 guidance, Western Digital provided a revenue midpoint of $4.1 billion, largely in line with Goldman Sachs' forecast of $4.166 billion and the market consensus of $4.04 billion.
The gross margin guidance range is 55% to 56%, higher than Goldman Sachs' forecast of 54.1% and the market consensus of 54.0%, exceeding by approximately 140 to 148 basis points. The non-GAAP EPS guidance midpoint is $4.00, slightly higher than Goldman Sachs' $3.94 and the market consensus of $3.80.
Goldman Sachs stated that market expectations were already highly optimistic heading into the earnings season. Investors held strong confidence regarding continued improvement in HDD (hard disk drive) pricing, momentum for margin expansion, and long-term demand visibility driven by capital expenditures from major cloud computing vendors.
Against this backdrop, guidance that merely meets market expectations is viewed as "not surprising enough."
Goldman Sachs maintains its 12-month price target for Western Digital at $650, calculated based on a 23x P/E ratio applied to normalized EPS of $28.00, representing approximately 18.5% upside potential from the current stock price of $548.56, with a "Neutral" rating maintained.
SanDisk's fiscal Q2 revenue was $8.965 billion, higher than Goldman Sachs' forecast of $8.841 billion and the Wall Street consensus of $8.713 billion, representing year-over-year growth of 371.6%.
Gross margin was 84.6%, largely in line with Goldman Sachs' forecast of 84.3%, but higher than the market consensus of 83.6%. Non-GAAP EPS was $39.25, higher than Goldman Sachs' forecast of $38.16 and the market consensus of $35.45, exceeding by approximately 3% to 11%.
However, the Q3 guidance clearly disappointed the market.
SanDisk provided a revenue guidance midpoint of $10.55 billion, lower than Goldman Sachs' forecast of $11.653 billion and the market consensus of $11.148 billion, with gaps of 9.5% and 5.4%, respectively.
The gross margin guidance midpoint is 84.0%, lower than Goldman Sachs' forecast of 84.7% and the market consensus of 86.7%, with gaps of approximately 74 to 267 basis points. The non-GAAP EPS guidance midpoint is $45.00, lower than Goldman Sachs' forecast of $49.95, but largely in line with the market consensus of $45.34.
Goldman Sachs noted that although SanDisk's stock price has fallen approximately 40% from its June high, partially digesting some of the excessive expectations, the market's optimism entering the earnings season regarding strong NAND pricing, accelerated adoption in AI data centers, and strong peer performance remained high, meaning that guidance below expectations will still lead to further stock price pressure.
Goldman Sachs maintains its "Buy" rating on SanDisk with a 12-month price target of $2,200, calculated based on a 20x P/E ratio applied to normalized EPS of $110, representing approximately 54.1% potential upside from the current stock price of $1,427.62.
Regarding industry transmission, Goldman Sachs believes that SanDisk's guidance miss will weigh to some extent on the overall sentiment of the storage industry. The report explicitly states that, given similar end-market exposure, Micron Technology is expected to experience a negative reaction following SanDisk's earnings report.
