The surge of SanDisk (SNDK.US): Is behind it the reshaping of storage genes by AI, or another epic cyclical illusion?

Based on the logic of "NAND has achieved 'decycling' through a long-term contract with a super large-scale cloud provider worth $42 billion", SanDisk (SNDK.US) has a return rate of over 356% since the beginning of the year. Analyst Louis Gerard stated that whether this surge in growth is a permanent leap in business model or the most extreme cyclical peak in the history of the flash memory industry remains to be debated. SanDisk was spun off from Western Digital Corporation (WDC.US) in February 2025, eliminating the "conglomerate discount" that has previously masked the potential of flash memory in HDD business, making them pure assets in the AI super cycle. The latest financial report shows that SanDisk's revenue in the third quarter of the fiscal year 2026 reached $5.95 billion, a year-on-year increase of 252.1%, with non-GAAP earnings per share of $23.41, significantly exceeding expectations. However, this was mainly due to pricing power and product mix optimization, the actual bit shipments remained flat year-on-year and decreased month-on-month. The company actively divested itself from the low value consumer market and focused on high-end data centers. The most astonishing indicator is the non-GAAP gross margin of 78.4%, far exceeding the industry average of 30%-40%, and the steepest climb in semiconductor history. However, this is completely reliant on the 645% year-on-year increase in the data center business. Limitations of the "New Business Model" SanDisk's implementation of the "New Business Model" (NBM) aims to eliminate cyclicality through long-term agreements with financial collateral. However, these agreements have a core flaw: long-term portions are priced dynamically. This means that although the $11 billion financial guarantee can prevent customers from defaulting, it cannot withstand price declines. With new capacities from Samsung and SK Hynix (such as 321-layer technology) expected to be released in 2026-2027, dynamic pricing will reset with the spot market. The market currently views the $42 billion RPO as fixed income, which may be a misconception. Significantly overvalued SanDisk's non-GAAP P/E ratio is 40.36, much higher than Micron's 26.30. A discounted cash flow (DCF) model reveals that considering price normalization after 2027, the implied target price is only $372.42, representing around 70% downside to the current price. Probability-weighted scenario analysis also predicts potential negative returns. Compared to Micron, SanDisk's current valuation premium lacks fundamental support. Risks and Conclusion The risk for SanDisk lies in the possibility of continued supply-demand imbalance due to manufacturers shifting towards a "profit-first" strategy and capacity leaning towards HBM limiting NAND supply; the $11 billion financial collateral also enhances contract enforceability. Analyst Louis Gerard believes that SanDisk's stock price skyrocketed from $33 to $1406 within a year, the logic based on AI narrative and supply constraints is now seen as absurd. With a 78% gross margin difficult to sustain in commercialized business, and this cycle setting a record for gross margin expansion, the future withdrawal may be equally severe. He has given the company a "sell" rating.