Executive Summary / Key Takeaways

• Sandisk Corporation ($SNDK) is undergoing a significant transformation, leveraging its specialized NAND flash technology to capitalize on the explosive, AI-driven demand in the data center market, which is projected to become the largest segment in NAND by calendar year 2026.
• The company delivered a robust first quarter of fiscal year 2026, with revenue of $2.31 billion, a 23% year-over-year increase, and non-GAAP EPS of $1.22, significantly exceeding guidance, driven by strengthening demand, strategic pricing, and operational efficiency.
• Technological differentiators like BiCS8, which is rapidly ramping and expected to constitute the majority of bit production by the end of fiscal year 2026, and the emerging High Bandwidth Flash (HBF) technology, are critical to Sandisk's competitive moat and ability to meet high-performance AI workload requirements.
• Sandisk has achieved a net cash positive position approximately six months ahead of schedule, demonstrating strong cash generation and disciplined capital allocation, with a positive free cash flow outlook for the second quarter despite increased capital investments in BiCS8.
• The company's second-quarter fiscal 2026 guidance projects continued strong performance, with revenue between $2.55 billion and $2.65 billion and non-GAAP gross margins expanding to 41-43%, driven by double-digit price increases and fading start-up costs.

A New Era for Flash: Powering the AI Revolution

Sandisk Corporation, a leading developer and manufacturer of NAND flash technology data storage devices and solutions, has embarked on a new era as an independent public company. Incorporated in 2024, Sandisk completed its spin-off from Western Digital Corporation on February 21, 2025, and began trading independently on Nasdaq under the ticker SNDK on February 24, 2025. This strategic separation has allowed Sandisk to sharpen its focus on its core strengths: delivering powerful flash storage solutions for artificial intelligence (AI) workloads in datacenters, edge devices, and consumer applications.

The industry landscape is currently experiencing a profound shift, with the rapid growth of AI infrastructure emerging as the dominant force driving demand for high-performance storage. Investments in data centers and AI infrastructure are expected to surpass $1 trillion by 2030, creating a significant tailwind for Sandisk's high-capacity, power-efficient solid-state drives (SSDs). The data center market, historically smaller than mobile, is projected to become the largest market in NAND by exabyte basis in calendar year 2026, fundamentally altering market dynamics, customer engagement, and pricing visibility.

Technological Edge: BiCS8 and High Bandwidth Flash

At the heart of Sandisk's strategy is its differentiated innovation engine, particularly its BiCS8 technology. This advanced NAND flash delivers industry-leading capacity, I/O performance, and energy efficiency, making it ideally suited for the demanding requirements of AI workloads. In the first fiscal quarter of 2026, BiCS8 already accounted for 15% of total bits shipped and is anticipated to represent the majority of bit production by the end of fiscal year 2026. This rapid ramp-up underscores its importance in driving Sandisk's product portfolio and competitive positioning.

Beyond BiCS8, Sandisk is actively developing High Bandwidth Flash (HBF) technology, a new memory solution designed to deliver breakthrough capacity and performance for AI inference applications. The company is collaborating with SK hynix (HXSCL) to standardize HBF specifications and is actively engaging potential customers for inference applications in both data center and edge environments. HBF is targeted to offer comparable bandwidth to High Bandwidth Memory (HBM) while delivering up to 8-16x the capacity of HBM at a similar cost. Sandisk expects to deliver first samples of HBF memory in the second half of calendar 2026, with samples of the first AI-inference devices with HBF anticipated in early 2027. This technological roadmap provides Sandisk with a significant competitive moat, enabling it to command higher average selling prices (ASPs), achieve lower costs per gigabyte, and secure a leading market position in the burgeoning AI storage segment.

Competitive Dynamics and Strategic Positioning

Sandisk operates in a highly competitive NAND flash market, with key rivals including Micron Technology (MU), Western Digital (WDC), Intel (INTC), and Samsung Electronics (SSNLF). While larger players like Samsung and Micron benefit from immense scale and diversified portfolios, Sandisk strategically differentiates itself through specialized expertise in NAND flash technology, focusing on reliability and performance tailored for specific applications. The company's joint venture structure with Kioxia Corporation, known as Flash Ventures, is a unique aspect of its operational model, allowing for shared capital expenditure costs in a capital-intensive industry. Sandisk's share generally equals 50% of Flash Ventures' output, providing a stable supply base.

In the data center segment, Sandisk's storage-focused SSD product line, codenamed Stargate, is gaining significant traction. The company has two hyperscaler qualifications underway, with plans for a third hyperscaler and a major storage OEM in calendar year 2026. Across its data center portfolio, Sandisk is actively engaged with five major hyperscale customers. This focused engagement and product development are enabling Sandisk to grow faster than the overall market in this critical segment, aiming to secure its fair share of the rapidly expanding data center exabyte demand, which is now forecast to increase by mid-40% in calendar year 2026.

Financial Strength and Operational Excellence

Sandisk's first fiscal quarter of 2026 showcased strong financial performance, reflecting the successful execution of its strategy. The company reported net revenue of $2.31 billion, a 21% sequential increase and a 23% year-over-year increase, surpassing its guidance. This growth was primarily driven by a mid-teens sequential increase in bits shipped and mid-single-digit pricing improvements during the quarter.

Profitability saw a significant uplift, with non-GAAP gross margin reaching 29.9%, a 350 basis point improvement quarter-over-quarter and above guidance. Excluding $61 million in start-up costs and $11 million in underutilization charges, the non-GAAP gross margin would have been 33.1%. Non-GAAP operating margins expanded by 530 basis points sequentially to 10.6%, contributing to a non-GAAP EPS of $1.22, a substantial increase from $0.29 in the prior quarter.

Operationally, Sandisk has demonstrated remarkable efficiency. The company generated $448 million in adjusted free cash flow, representing a 19.4% free cash flow margin.

It achieved a net cash positive position of $91 million approximately six months ahead of its Investor Day target, driven by strong cash generation and a robust market.

Inventory days decreased from 135 to 115 as demand outpaced supply, and the company repaid $500 million of its Term Loan B debt.

Research and development expenses increased by $33 million, reflecting strategic investments in compensation, datacenter program material purchases, and R&D projects to fuel innovation.

Outlook and Forward Guidance

Sandisk's outlook for the second quarter of fiscal year 2026 remains highly optimistic, underpinned by continued strong demand and favorable market dynamics. The company projects revenue between $2.55 billion and $2.65 billion, driven by double-digit price increases and mid-single-digit bit growth. Non-GAAP gross margin is forecast to expand further to between 41% and 43%, benefiting from higher pricing and anticipated cost tailwinds, including a reduction in start-up costs to an expected $30 million. Non-GAAP EPS is guided between $3.00 and $3.40, assuming 155 million fully diluted shares.

Management anticipates that demand for NAND products will continue to outpace supply through the end of calendar year 2026 and potentially beyond, with products currently on allocation across all end markets. This sustained demand environment, particularly from the AI sector, is leading to proactive customer engagements for long-term supply commitments, a welcome development for an industry requiring significant long-term capital decisions. Sandisk's fiscal 2026 capital expenditure plans remain unchanged, aligning with a long-term strategy to grow supply in line with a mid-to-high teens compound annual growth rate for bit demand, primarily through productivity gains from nodal transitions rather than new wafer capacity. While the third fiscal quarter typically experiences seasonal softness in the consumer business, the increasing strength and changing mix towards the data center market may mitigate some of these historical patterns.

Risks and Considerations

Despite the compelling growth narrative, investors should consider several risks. The NAND market remains subject to volatile demand and pricing trends, and while current conditions are favorable, historical cyclicality is a factor. Supply chain risks, including dependence on a limited number of qualified suppliers and the availability and cost of materials, could impact production. Furthermore, changes in global trade policies, including tariffs, could increase costs and reduce demand for Sandisk's products. The company's reliance on strategic relationships with key partners like Kioxia Corporation and the minimum annual commitment of $550 million under the supply agreement with SDSS also represent operational dependencies.

Conclusion

Sandisk Corporation is at the forefront of a transformative period in the data storage industry, strategically positioned to harness the immense growth propelled by artificial intelligence. Its recent spin-off has empowered a focused approach, yielding strong financial results and accelerated progress towards key operational milestones. The company's technological leadership, particularly with BiCS8 and the promising High Bandwidth Flash, provides a robust foundation for competitive differentiation and market share gains in the burgeoning data center segment. With demand outpacing supply, strategic customer engagements for long-term commitments, and a clear roadmap for margin expansion and free cash flow generation, Sandisk is demonstrating a compelling investment thesis. While inherent industry cyclicality and supply chain dependencies warrant careful monitoring, Sandisk's disciplined execution and innovative product portfolio position it as a significant player in powering the future of AI-driven data.