Bernstein raises SanDisk target price to $3,000, betting long-term contracts will break the storage cycle curse.

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For a long time, the storage industry has been regarded as one of the most cyclical tracks in the semiconductor sector, but Bernstein believes this perception may be undergoing a fundamental change.

In a research report released on June 30, Bernstein significantly raised the target price of SanDisk from $1,700 to $3,000. This adjustment is not due to a more aggressive short-term price forecast, but is based on a deeper judgment: The new generation of Long-Term Agreements (LTA) is reshaping the business model of the storage industry, significantly decreasing profit volatility and prompting a re-evaluation of valuation systems.

The report argues that the market has always given storage companies relatively low valuations because the industry is highly dependent on spot prices—once prices enter a downturn cycle, revenue, profits, and even cash flow rapidly deteriorate. Now, with SanDisk, Micron and other manufacturers implementing new long-term agreements, these LTAs are fundamentally different from those in the past; they are, in essence, more akin to commercial contracts that can lock in future profits rather than traditional supply agreements.

The Biggest Change in New Generation LTAs: No Longer Just "Ensuring Supply"

Bernstein points out that past investor skepticism toward storage industry long-term agreements was not unwarranted.

Traditional LTAs were almost entirely biased toward customers: customers had procurement options, while suppliers bore the obligation to supply. When market prices dropped, customers could abandon purchases while suppliers had almost no safeguards, so long-term agreements could not truly smooth out industry cycles.

The new model brings three fundamental changes: First, prices are no longer fully determined by spot market fluctuations, but adopt fixed prices or pricing bands with upper and lower bounds;Second, customers must provide substantial funds in advance or financial guarantees, significantly raising the cost of default;Third, contract durations have extended from one to two years to three to five years, with some agreements even lasting up to five years.

The report argues that this means LTAs have, for the first time, truly become "bilateral constraint" contracts, with suppliers no longer solely bearing cycle risks.

More importantly, the protective effect of financial guarantee mechanisms is widely underestimated. Many investors simply interpret SanDisk’s $11 billion and Micron’s $22 billion in funding commitments as a fixed proportion of contract amounts. But Bernstein notes that as contracts are fulfilled, the remaining contract amount continuously declines, while the guarantee amount remains unchanged, so the guarantee coverage ratio increases.

In other words, the closer to the end of the contract, the greater the economic cost of customer default and, conversely, the stronger the price protection for suppliers.

Even with a 70% Price Plunge, Profits Remain Well Above Traditional Cycles

To verify whether this business model can really weaken cyclicality, Bernstein built a stress test model.

The model evaluates the impact of different LTA coverage ratios, different price declines, and contract execution stages on profitability, and assumes the most pessimistic scenario—if the market price is $1 lower than the contract price, customers will abandon the contract and switch to spot market purchases.

Even under this extreme assumption, results still show that long-term agreements significantly reduce downside risk to profits.

Bernstein estimates that when 60% of SanDisk’s shipments are covered by LTAs, even if NAND prices plummet 72% from their peak, dropping to $0.11/GB—which exceeds the declines seen in several previous industry downturns—the company’s FY2030 EPS could still reach $214; without LTA protection in the same scenario, EPS would be about $81.

Furthermore, protection continues to strengthen as contracts enter their latter stages.

The report anticipates that by FY30, as the remaining contract amount declines, the same scale of financial guarantee will cover a larger proportion of contractual obligations. In an extreme stress test where market ASP falls to just $0.06/GB, if LTA coverage reaches 60-80%, SanDisk’s composite ASP can still be maintained at $0.19-$0.24/GB, equivalent to 65%-85% of the contract floor price; gross margin can remain above 80%, far higher than traditional storage cycles.

The Cycle Hasn't Disappeared, But Valuation Logic Is Changing

Bernstein does not believe LTAs can entirely eliminate the storage industry cycle.

The report notes that prices will still enter down cycles in the future, and company profitability will still be affected, but the declines will be significantly less than in historical cycles. Therefore, the market should no longer value SanDisk as a traditional "commodity cyclical stock."

In terms of profit forecasts, Bernstein raises SanDisk’s FY27 and FY28 EPS to $243 and $272, respectively—a roughly 22% and 34% increase over previous forecasts; in optimistic scenarios, EPS for these two years could reach $350 and $400.

With sustained improvement in profit sustainability, Bernstein also adjusts the valuation framework, no longer using traditional peak-cycle valuation, but granting an 11x expected FY28 P/E ratio, or 14x average cyclical profit from FY26 to FY30, corresponding to a target price of $3,000.

The report concludes that with more storage shipments shifting to long-term agreements, rising demand from AI data centers, and the increasing predictability of future revenues, the storage industry is poised to gradually shed its traditional "high volatility, low valuation" label. This means the market needs to reprice not just SanDisk’s profitability, but the cyclical nature of the entire storage industry.

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