NAND supply tightness may persist until 2028! Citi is bullish on AI demand driving memory chip price increases, reiterates "Buy" rating on SanDisk (SNDK.US).

Citi Research said that Micron Technology, Inc.'s (MU.US) latest fourth-quarter results further confirm the ongoing tightness in the NAND flash memory market, and it expects the industry's tight supply-demand situation to potentially persist until 2028, providing support for memory chip prices. Citi believes that sustained growth in artificial intelligence (AI)-driven data center demand will further improve NAND industry fundamentals and benefit SanDisk (SNDK.US). Citi analyst Atif Malik reiterated a "Buy" rating on SanDisk in a research note published Thursday, maintaining a price target of $2,100. He noted that Micron's latest results reflect that NAND market supply-demand dynamics remain favorable to suppliers, while long-term demand growth from AI infrastructure buildout also improves visibility into the industry's future revenue and earnings performance. Micron NAND Revenue Jumps 42% QoQ, Prices Rise About 30% Micron's fourth-quarter results showed strong NAND business growth, with product price increases serving as an important driver. According to Citi's analysis, Micron's fourth-quarter NAND business revenue grew 42% quarter over quarter, NAND bit shipments rose 10% quarter over quarter, and average selling prices increased about 30%. This price increase was significantly higher than the market consensus of 20%, but slightly below Citi's previous forecast of 34%, reflecting that NAND market supply tightness remains relatively severe. Notably, the revenue growth in the NAND business significantly exceeded shipment growth, indicating that price increases contributed prominently to revenue growth. With supply relatively constrained and demand continuing to grow, memory chip manufacturers have gained stronger pricing support, which is also an important reason why Citi continues to be bullish on NAND industry fundamentals. Industry Supply Tightness May Persist Until 2028 Regarding future supply-demand trends, Micron management expects the company's NAND supply growth rate in calendar year 2026 to be lower than the industry's overall supply growth rate. Looking ahead to 2027 and 2028, Micron expects global NAND industry bit shipment growth to be in the mid-20% range, but even as supply scale continues to expand, the industry may still face supply constraints during these two years. This means that the tight supply-demand situation in the NAND market may not be a short-term phenomenon, but is expected to persist until 2028. Citi noted that although Micron's judgment on future industry bit shipment growth is higher than SanDisk's previous estimate of a mid-double-digit compound annual growth rate for the industry, the bank remains positive on the NAND market. In Citi's view, the key to determining the industry outlook is not only the pace of supply growth, but also whether demand can continue to absorb new capacity. As AI data centers continuously raise requirements for storage capacity and data processing efficiency, NAND demand is expected to receive long-term support. AI Data Center Demand Continues to Grow, SSD Applications Become an Important Driver Citi believes that AI-driven data center construction is one of the important long-term factors supporting NAND demand, especially as demand for solid-state drives (SSDs) in AI inference processes is increasing. Among these, one noteworthy application is shifting some key-value cache (KV Cache) data from more expensive storage resources to more cost-effective SSDs. KV Cache is a caching mechanism used by large language models during inference to store previously computed results, reducing redundant computation and improving the efficiency of processing requests. As AI models scale up and inference tasks increase, the storage resources occupied by cached data may also continue to grow. By shifting some cached data to SSDs, data centers have the opportunity to meet storage needs while reducing overall operating costs. Citi believes that such applications are expected to drive data centers to continuously increase demand for NAND flash memory and bring more durable growth momentum to the industry. Compared with traditional consumer electronics demand, AI data center-related investment may also provide new growth sources for NAND suppliers. Citi Maintains "Buy" Rating on SanDisk, Bullish on Long-Term Supply-Demand Fundamentals Based on the industry signals from Micron's latest results, Citi continues to be bullish on SanDisk's business prospects and maintains its $2,100 price target. Malik said that AI-driven data center demand is sustainable, especially the trend of using more cost-effective SSDs to handle some KV Cache data, which will further support NAND industry supply-demand fundamentals. At the same time, improved long-term demand visibility also helps strengthen market confidence in SanDisk's future business performance. Citi specifically noted that although Micron's expectations for future industry bit shipment growth are higher than SanDisk's previous judgment, considering the sustainability of AI demand and the business visibility brought by long-term agreements, the bank remains positive on SanDisk. Overall, Micron's fourth-quarter NAND business revenue growth of 42% quarter over quarter and price increases of about 30% further highlight the current tight supply-demand situation in the memory market. Against the backdrop of continued AI data center expansion and increasing SSD application scenarios, Citi believes the NAND industry is expected to maintain a favorable supply-demand environment in the coming years, and SanDisk is also expected to benefit from this trend.