Sandisk Signs Five Long-Term Contracts Worth $42 Billion as NAND Supercycle Drives 422% Stock Surge

Key facts

• Sandisk's Q3 revenue surged 251% year over year to $6 billion.
• Data center revenue skyrocketed 645% to $1.47 billion, driven by AI demand.
• Gross margins expanded from 22.5% a year ago to 78.4% in Q3.
• Adjusted EPS flipped from a loss of $0.30 to a profit of $23.41.
• Q4 revenue guidance is $7.75–$8.25 billion, up from $1.9 billion a year ago.
• The company signed five long-term contracts, three in Q3 worth at least $42 billion.
• Contracts are secured by $11 billion in guarantees from third-party financial institutions.
• Sandisk's stock has risen 422% year to date, trading at a forward P/E of 7 times fiscal 2027 estimates.

A Supercycle Fueled by AI and Supply Constraints

Sandisk is riding an extraordinary wave in the NAND flash memory market, where demand has outstripped supply for months. The company's fiscal third-quarter results, released at the end of April, showed revenue soaring 251% year over year to $6 billion, propelled by a 645% surge in data center revenue to $1.47 billion. That segment alone now accounts for nearly a quarter of total sales, driven by the insatiable appetite of AI data centers for high-performance solid-state drives. The root cause of this supercycle lies in a strategic shift by the three dominant memory manufacturers. After a market collapse a few years ago, they slashed NAND production and redirected capacity toward DRAM, the memory type used in AI training servers. When AI data centers suddenly needed massive amounts of flash memory to store training data, supply could not keep pace. Prices soared, and Sandisk, as a pure-play NAND maker, became the primary beneficiary.

Gross Margins Nearly Quadruple as Earnings Blow Past Forecasts

The price surge translated directly into Sandisk's bottom line. Gross margins climbed from 22.5% a year ago to 78.4% in the third quarter, up from 50.9% in the previous quarter. Adjusted earnings per share swung from a loss of $0.30 to a profit of $23.41, far exceeding the company's own forecast of $12 to $14. The margin expansion reflects both higher average selling prices and the shift to more profitable triple-level cell SSDs in data centers. Looking ahead, Sandisk management expects the momentum to continue. For the fiscal fourth quarter, it guided revenue between $7.75 billion and $8.25 billion, compared with $1.9 billion a year ago. Gross margin is projected to reach 78.9% to 80.9%, while adjusted EPS is forecast to soar from $0.29 to between $30 and $33 – a more than 10,000% increase. These numbers underscore the depth of the current cycle.

Long-Term Contracts Aim to Break the Boom-Bust Pattern

Beyond the quarterly numbers, the most significant development was Sandisk's announcement of a new business model based on long-term agreements. During the third quarter, the company signed three contracts with a minimum value of $42 billion, which are already in its backlog. Two more agreements were signed after the quarter ended, bringing the total to five. The longest of these contracts extends for five years. To secure performance, the contracts are backed by $11 billion in guarantees managed by third-party financial institutions. These guarantees would be triggered if Sandisk failed to fulfill its obligations. The agreements include both fixed and variable pricing components, and management said they will cover more than one-third of the company's BiCS production – a 3D flash technology developed in partnership with Kioxia – in the next fiscal year. This shift represents a deliberate effort to reduce the cyclicality that has historically plagued the flash memory industry.

Stock Soars 422% but Valuation Remains Modest by Historical Standards

Despite the staggering rally – Sandisk's stock has risen 422% year to date – the shares trade at a forward price-to-earnings ratio of just 7 times fiscal 2027 analyst estimates. That discount reflects the market's lingering skepticism about the sustainability of the NAND supercycle. Flash memory has a long history of violent boom-and-bust cycles, and investors worry that today's windfall could evaporate as quickly as it appeared. Sandisk's management is betting that the new long-term contracts will change that narrative. By locking in revenue streams and pricing mechanisms for years ahead, the company hopes to smooth out the troughs that have historically followed peaks. The $42 billion in backlog provides a visible floor for future revenue, while the $11 billion in guarantees offers a layer of protection against default. Whether these measures will be enough to convince the market remains an open question.

Edge and Consumer Segments Also Show Strength

While data center growth grabbed headlines, Sandisk's other segments also posted impressive gains. The Edge segment, which supplies memory for smartphones and PCs, saw revenue jump 295% to $3.7 billion. The consumer segment, encompassing flash drives and other retail products, grew 44% to $820 million. Together, these segments contributed more than two-thirds of total revenue, highlighting the breadth of demand across end markets. The Edge segment benefited from the recovery in smartphone and PC markets, as well as the increasing memory content per device. The consumer segment, though smaller, showed resilience as prices for flash drives rose in tandem with the broader NAND market. This diversification provides Sandisk with multiple growth engines, even as the data center business steals the spotlight.

The Road Ahead: Can the Supercycle Be Sustained?

Sandisk's guidance for the fourth quarter implies continued momentum, but the bigger question is whether the NAND supercycle can last. The supply constraints that sparked the rally are partly self-correcting: high prices incentivize memory makers to restore production capacity. If the big three – Samsung, SK Hynix, and Micron – ramp up NAND output, prices could stabilize or even decline. Sandisk's long-term contracts provide a buffer, but they cover only a portion of its output. The company's ability to maintain its gross margins and earnings growth will depend on demand holding up, particularly from AI data centers. Any slowdown in AI infrastructure spending could trigger a sharp reversal. For now, Sandisk is enjoying a golden moment, but the industry's history suggests that the next downturn is never far away.

A Calculated Bet on Structural Change

Sandisk is attempting to rewrite the rules of the flash memory business. By locking in customers with multi-year agreements and financial guarantees, it is trying to transform a cyclical commodity into a more predictable revenue stream. The early results are promising: the stock has rewarded believers with a 422% gain, and the backlog provides visibility that the company has never had before. Yet the market remains cautious, pricing the stock at a single-digit P/E multiple. The tension between Sandisk's stellar performance and its modest valuation captures the central dilemma facing investors. If the long-term contracts succeed in smoothing the cycle, today's price may look cheap in hindsight. If the industry's boom-and-bust nature proves intractable, the stock could face a painful correction. The next few quarters will provide the first real test of Sandisk's new model.

The bottom line

• Sandisk's Q3 revenue hit $6 billion, up 251% year over year, driven by AI demand and NAND price surge.
• Gross margins expanded to 78.4%, and adjusted EPS swung to $23.41 from a loss of $0.30.
• The company signed five long-term contracts worth at least $42 billion, with $11 billion in guarantees.
• Stock has risen 422% year to date but trades at a forward P/E of 7, reflecting cyclical concerns.
• Q4 guidance projects revenue of $7.75–$8.25 billion and adjusted EPS of $30–$33.
• The long-term contracts cover over one-third of BiCS production, aiming to reduce cyclicality.