Target price: $1,000! The Wall Street institution most optimistic about SanDisk estimates a valuation with a PE ratio of only 11 times.

After a strong earnings report, Bernstein analyst Mark C. Newman raised the target price for SanDisk sharply from $580 to $1,000, a hike of 72%. The aggressive target price is based on the firm's forecast of $90.96 earnings per share for fiscal year 2027, corresponding to a price-to-earnings ratio of just 11x.

More notably, the analyst expects the company's free cash flow in fiscal 2027 to reach $13.8 billion, with an EV/FCF valuation multiple of just 10.3x, 195% higher than consensus expectations. For investors, the key focus is the explosive expansion in the company's gross margin—Non-GAAP gross margin has reached 52.1% in Q2, far exceeding the market expectation of 42%, with Q3 guidance as high as 65-67%, signaling the start of a super-profit cycle.

Results Far Exceeded Expectations, Gross Margin Expansion is the Highlight

The analyst pointed out that SanDisk's Q2 FY2026 results comprehensively exceeded expectations. Revenue reached $3 billion, up 31% YoY, surpassing the consensus estimate of $2.673 billion by 13.2%. The driving factors include shipments growing by low single digits percentage, while average selling price (ASP) soared over 35% quarter-on-quarter, far exceeding the expected 16%.

Profit margin performance was particularly impressive. Non-GAAP gross margin expanded to 52.1%, 812 basis points above the market's 42% expectation, up 2,220 basis points compared to last quarter's 29.9%. Operating margin hit 37.5%, while market consensus was just 24.4%, beating by 1,310 basis points. Non-GAAP EPS was $6.20, 77.4% higher than the consensus of $3.49.

The analyst emphasized that the drivers of margin expansion came not only from ASP increases, but also significant cost reductions and product mix optimization. Unit cost in Q2 fell by about 9%, partly due to a decline in plant startup costs—this quarter's startup costs dropped to $24 million, below last quarter’s $72 million, expected to be eliminated entirely in the future.

Q3 Guidance as Stock Catalyst, Gross Margin to Break 65%

Bernstein analyst believes that Q3 guidance is the true catalyst driving the stock surge.

The company is guiding Q3 revenue of $4.4-4.8 billion, up 53% QoQ, implying ASP will soar by over 55% QoQ. Even more astonishing, Non-GAAP gross margin guidance is 65-67%, up 1,490 basis points QoQ. This will drive Non-GAAP EPS to $12-14, far above the analyst's base scenario forecast of $6.5, and even exceeding its optimistic scenario forecast of $9.1.

The analyst pointed out that more than 90% of sales are still based on short-term contracts, but the company is assessing a shift to longer-term agreements to secure higher and sustainable pricing and fixed volumes. The company has signed one long-term agreement including prepayment terms, and several more are under negotiation.

Earnings Forecasts Raised Sharply, FY27 EPS 188% Above Consensus

Based on strong results, above-expectation guidance, company commentary, and an extremely robust pricing environment, the analyst once again sharply raised earnings forecasts—mainly on stronger near-term pricing power. FY2026 and FY2027 EPS estimates were raised to $38.92 and $90.96, respectively, with the latter 188% above consensus of $31.59.

Specifically, FY2026 revenue forecast is $15.145 billion, up 28.8% from the old forecast of $11.761 billion; gross margin forecast is 59.6%, up 952 basis points from the previous 50.0%; operating margin forecast is 47.6%, up 1,456 basis points from the previous 33.0%.

FY2027 forecasts are even more aggressive: revenue $25.766 billion, up 43.9% from the previous forecast; gross margin as high as 74.9%, up 718 basis points; operating margin reaches 65.2%, up 1,261 basis points. Adjusted free cash flow expected to hit $13.782 billion, up 87.1% from previous estimates.

Data Center Demand Boom, AI Drives Structural Improvement

The analyst stressed that the company is strategically allocating constrained supply to end markets prioritizing supply security over price—namely data centers rather than PCs/mobile devices. Data center is undoubtedly the fastest growing segment this quarter, up 64% QoQ, compared with edge computing at 21% and consumer at 39%. Data center now accounts for about 15% of total revenue, up from 12% last quarter.

Management has repeatedly raised its outlook for data center demand, from initial 20+% growth to over 40%, now raised to a projected over 60% EB (exabytes) growth in 2026. The company expects data centers to become the largest end market for the NAND industry in 2026, driven by AI workloads.

The analyst noted that, based on Jensen Huang’s comments at CES about the new Vera Rubin configuration, management believes the new AI system architecture could drive an additional 75-100 EB of NAND demand in 2027, and perhaps close to doubling in 2028—though this upside potential is not yet included in guidance or growth estimates.

$1000 Target Price, Valuation Still Attractive

The analyst raised the target price from $580 to $1,000, still based on 11x (unchanged) 2027 EPS. This means that, based on the analyst’s projected $13.8 billion in FY2027 free cash flow, the EV/FCF multiple is 10.3x, 195% above the market consensus.

Based on the January 29th closing price of $539.30, the target price represents 85% upside. The current share price corresponds to FY2026 PE of 13.9x, FY2027 PE of just 5.9x—well below technology stock averages. The analyst believes that, since the company is entering a super-profit cycle and 2027 gross margin is expected to reach a historic high near 75%, this valuation is highly attractive.

Of note, SanDisk’s share price has risen 127.2% year-to-date and more than 1100% over the past 12 months, but the analyst believes that given the potential for earnings growth in the next two years, the current valuation still has considerable upside.

Risk Warning and DisclaimerThe market has risks; investments need caution. This article does not constitute personal investment advice, nor does it take into account the unique investment objectives, financial situation, or needs of individual users. Users should consider whether any views, opinions, or conclusions in this article suit their particular situation. You are responsible for investments made on this basis.