Research Report Analysis: Morgan Stanley's Detailed Explanation of SanDisk SNDK, the Truth About Cloud Data Center Pricing Power and AI Inference Benefits

Author: Rita

Market Guide Reading

Morgan Stanley updated its research report on SanDisk on June 22, raising the target price from $1,100 to $1,750, maintaining an overweight rating. The reasoning is straightforward: AI inference demand is rewriting the rules of the NAND market, with cloud data center customers being insensitive to prices, which gives SanDisk pricing power. Plus, new business model agreements lock in gross margins, making the company's future profits largely predictable.

Demand Structure Changes, AI Inference Reshapes the NAND Market

Following a 64% quarter-over-quarter growth in Q4, SanDisk’s cloud business growth further expanded to 233% in Q1. The behind-the-scenes factor is the change in demand structure. Cloud providers are paying premiums for AI inference KV Cache (key-value cache) and context window storage. Morgan Stanley’s estimates show that cloud business already accounts for a high proportion of SanDisk’s Q1 sales, driven almost entirely by TLC (three-layer cell) products, with customers seeking storage density and performance. These customers do not operate by consumer logic; they sign long-term contracts with fixed prices or price caps, which truly support gross margins.

SanDisk’s new business model (NBM) agreements have already locked in over one-third of FY27 bit shipments. Most of these agreements are for 3 to 5 years, with fixed prices or upper/lower limits. Key point: even at the bottom price, these contracts can maintain about 80% gross margin. Looking at historical data, SanDisk’s gross margin was only 30.3% in FY25, rising to 69.2% in FY26e, and projected to reach 86.7% in FY27e. This improvement is sustainable. Morgan Stanley believes the company may eventually cover 70% to 80% of shipments with NBM. Once reaching this level, the company’s profitability has a buffer. Meanwhile, with an 80% gross margin at the bottom price, high profits can be maintained even during price wars.

Supply Pricing Power and Profit Resilience

The current NAND supply tightness may persist for a long time. In past industry cycles, overcapacity repeatedly triggered price crashes. This time, AI data center expansion is still accelerating, and storage demand remains far from saturated. SanDisk locking in long-term contracts during this window can hedge much of the cyclical risk. Morgan Stanley expects ASP (average selling price) to continue rising into 2026, possibly extending into mid-2027. About 40% to 50% of SanDisk’s revenue comes from North America, with data centers already the largest end-market. Under tight supply and high customer loyalty, pricing power resides with suppliers.

The company aims for a 15% to 19% bit growth rate, mainly achieved through technological transitions (density increases and process improvements), not capacity expansion. From FY25 to FY27, revenue is expected to grow from $7.36B to $48.83B, roughly 6.6 times faster, with EPS rising from $2.74 to $14.73. The key behind these numbers is growth quality, not speed. Growth is driven by high-margin cloud business, not low-price, thin-margin consumer markets. The company just announced a $6 billion share repurchase plan, with management believing current stock prices are among the lowest valuations in the semiconductor sector. From a valuation perspective, Morgan Stanley’s three scenarios are based on FY27 full-year EPS: a baseline at 28x PE corresponding to $1,750, a bull case at 31x PE for $2,635, and a bear case at 25x PE for $1,100.

Catalysts and Risks Coexist

Several upside catalysts are worth watching. Enterprise SSD (eSSD) penetration in data centers may exceed expectations, edge AI applications could boost NAND content growth, and investments in advanced technologies like HBF (high-bandwidth flash) may start to pay off. Downside risks include slower-than-expected industry growth, increased capital expenditure by competitors, SanDisk losing market share in data centers, and Chinese storage manufacturers like YMTC (Yangtze Memory Technologies) continuing to gain market share.

Morgan Stanley’s bullish thesis on SanDisk is built on three pillars: structural demand changes driven by AI inference, gross margin protection via NBM agreements, and ongoing NAND supply tightness. The target price has been raised from $1,100 to $1,750, corresponding to about 28x FY27 PE. The forecast will be revised as new earnings reports and customer feedback come in, but the logical framework is more valuable than specific numbers.

Disclaimer

This article is a compilation and interpretation of third-party brokerage research reports by TideResearch. The ratings, target prices, profit forecasts, and related judgments quoted are solely the views of the respective brokerage analysts, representing their institutions’ positions, not TideResearch’s views, nor any investment advice.

Please note three points when reading: First, the target price reflects analysts’ expectations for the next approximately 12 months and is a forecast, not a promise; it may be adjusted based on performance and market conditions. Second, sell-side research reports tend to be optimistic, and some covered companies have investment banking relationships with the broker. Third, the value of the report lies in its main logic and underlying assumptions, not in any specific target price. Focus on the logic, not just the price.

Markets carry risks; decisions should be made independently. This article should not be used as the basis for buying or selling any securities.

Data source: Morgan Stanley research report (Joseph Moore, June 22, 2026) · Company financial reports

TideResearch · June 2026