SanDisk (SNDK) Q1 2026: Data Center Revenue Climbs 26% as AI Drives NAND Allocation Shift
SanDisk’s Q1 2026 results reveal a decisive shift toward data center and AI-driven demand, with allocation dynamics and long-term customer commitments reshaping the NAND landscape. Margin expansion and robust free cash flow highlight disciplined execution, while management signals further upside as hyperscaler partnerships deepen and BICS-8 technology scales. Investors should watch for continued pricing power, mix shift, and the evolution of long-term supply agreements as the company navigates a structurally tight market through FY26 and beyond.
Summary
- AI-Led Demand Reshapes NAND Allocation: Data center and AI workloads are driving multi-year supply commitments and a shift in customer engagement.
- Margin Expansion Anchored by Pricing and Mix: Pricing power and BICS-8 node ramp underpin strong gross margin gains despite elevated OpEx.
- Visibility Extends Beyond 2026: Leadership signals demand exceeding supply into 2027, supporting sustained investment and capital discipline.
Performance Analysis
SanDisk delivered a standout Q1, with total revenue of $2.3 billion, up 21% sequentially and 23% year-over-year, exceeding guidance on both top line and margins. Data center revenue surged 26% QoQ, making it the company’s fastest-growing segment and a clear beneficiary of hyperscaler and AI infrastructure buildouts. Edge (formerly client) and consumer segments also posted robust sequential growth, up 26% and 11% respectively, reflecting broad-based demand across PC, mobile, and gaming channels.
Gross margin expanded to 29.9% (up 350bps QoQ), with a notable tailwind from higher pricing and favorable mix. Excluding one-time startup and underutilization costs, non-GAAP gross margin would have reached 33.1%. Operating expenses rose above guidance, primarily due to variable compensation from revenue overdelivery, but operating margin still improved by 530bps QoQ. Adjusted free cash flow of $448 million (19.4% margin) and a net cash position six months ahead of target underscore strong execution and balance sheet discipline.
- Data Center Outpaces Market: Sequential growth in data center revenue signals share gains and early traction for Stargate SSDs.
- Pricing Power Drives Results: Double-digit price increases, coupled with mid-single-digit bit growth, are the primary drivers of revenue outperformance.
- Margin Gains Despite OpEx Rise: Operating expenses rose on higher variable comp, but margin expansion was sustained by pricing and mix.
SanDisk’s ability to convert strong demand and pricing into free cash flow, while reducing inventory days and achieving net cash status, positions the company well for ongoing investment and potential shareholder returns.
Executive Commentary
"Our results reflect the strong execution by the Sandys team in an environment marked by strengthening demand across our end markets. In the first quarter, demand for our NAN products continued to outpace our supply, a dynamic we expect to persist through the end of calendar year 26 and beyond."
David, President and Chief Executive Officer
"The incremental revenue drove the higher-than-expected gross margins. We achieved a net cash position approximately six months faster than the target shared during investor day in February, driven by strong cash focus in a robust market."
Luis, Chief Financial Officer
Strategic Positioning
1. Data Center as Growth Engine
SanDisk’s data center business is now the company’s primary growth vector, with hyperscaler and cloud demand driving both volume and pricing leverage. The company’s Stargate SSD line is under qualification with multiple hyperscalers, and management expects sequential data center sales growth throughout FY26. The shift to long-term customer commitments is increasing visibility and enabling more capital-efficient planning.
2. BICS-8 Technology and Product Mix
BICS-8, SanDisk’s latest NAND node, delivers industry-leading capacity, IO performance, and energy efficiency. It accounted for 15% of total bits shipped in Q1 and is expected to become the majority by year-end, enabling the company to expand data center share and improve cost structure. Mix shift toward QLC (quad-level cell) SSDs—projected to double from 20% to 40% of business by FY26 exit— positions SanDisk to capture high-capacity storage demand for AI and cloud workloads.
3. Edge and Consumer Diversification
Edge (PC, mobile, gaming, automotive) and consumer markets remain critical for volume stability and margin diversity. PC refresh cycles, Windows 11 adoption, and premium smartphone launches are driving incremental unit and capacity growth. Gaming partnerships (Nintendo Switch 2, ROG Xbox Alley) and refreshed retail offerings are sustaining consumer relevance, especially in seasonal periods.
4. Supply Allocation and Customer Engagement
SanDisk is operating in a supply-constrained environment, with all major end markets on allocation and customers proactively seeking multi-quarter and multi-year supply agreements. This marks a structural shift from quarter-to-quarter ordering, improving demand visibility and supporting long-term capital allocation.
5. Capital Discipline and Shareholder Value
Having reached a net cash position ahead of plan, SanDisk is maintaining a disciplined capital allocation strategy: invest for growth, support technology transitions, and return capital to shareholders. CapEx plans remain unchanged, with a focus on growing supply in line with mid- to high-teens bit demand CAGR.
Key Considerations
This quarter marks a turning point for SanDisk, as AI-driven demand and hyperscaler partnerships drive structural changes in both market dynamics and internal execution.
Key Considerations:
- AI and Data Center Mix Shift: Data center now leads NAND demand, with AI workloads accelerating the transition from mobile-centric to cloud-centric revenue streams.
- Long-Term Agreements Emerging: Multi-year supply discussions with hyperscalers are in early stages, but indicate a move toward greater demand visibility and pricing stability.
- Pricing Power Supports Margins: Double-digit price increases and mix shift to higher-value SSDs are expected to persist as supply remains tight.
- BICS-8 Ramp Drives Cost Efficiency: Transition to BICS-8 node and QLC SSDs will enable margin expansion even as wafer capacity remains flat.
- Seasonality and Consumer Exposure: Q3 is historically a seasonally weaker period for consumer, but increased data center mix may dampen volatility.
Risks
SanDisk faces risks from potential supply-demand imbalances if industry capacity increases unexpectedly or if hyperscaler demand proves volatile. The company’s heavy reliance on pricing power and allocation could reverse if the market loosens or if competitors accelerate new node transitions. Execution risk remains around BICS-8 ramp, customer qualifications, and the timeline for long-term agreements.
Forward Outlook
For Q2 2026, SanDisk guided to:
- Revenue between $2.55 billion and $2.65 billion, driven primarily by double-digit pricing and low single-digit bit growth.
- Non-GAAP gross margin between 41% and 43%, reflecting higher pricing and BICS-8 cost tailwinds.
- Non-GAAP operating expenses between $450 million and $475 million, supporting data center expansion and HBF innovation.
- Non-GAAP EPS between $3.00 and $3.40.
For full-year 2026, management maintained CapEx plans and reiterated a strategy to grow supply in line with market demand, assuming mid- to high-teens bit growth. Leadership continues to expect demand to outstrip supply through at least the end of 2026, with customer allocation and long-term agreements providing improved visibility.
- Pricing expected to remain the primary driver of revenue growth
- BICS-8 transition and QLC mix expected to further expand margins
Takeaways
SanDisk’s Q1 results mark a structural inflection in NAND market dynamics, with data center and AI workloads driving both top-line growth and strategic customer engagement.
- Data Center Momentum: Strong sequential growth and expanding hyperscaler relationships validate SanDisk’s pivot to enterprise SSDs and AI-centric storage.
- Margin Expansion: Sustained pricing power and BICS-8 ramp are delivering outsized gross margin gains, even as OpEx rises to support growth initiatives.
- Visibility and Capital Discipline: Early-stage long-term agreements and a net cash balance set the stage for continued investment and potential shareholder returns.
Conclusion
SanDisk’s Q1 2026 performance demonstrates the company’s successful pivot to data center and AI-driven growth. With robust pricing, disciplined execution, and expanding customer commitments, SanDisk is positioned to outperform as NAND market dynamics evolve through FY26 and beyond.
Industry Read-Through
SanDisk’s results reinforce a sector-wide NAND supply constraint, with hyperscaler and AI demand shifting the industry’s center of gravity from mobile to data center. Competitors in NAND and adjacent memory markets should expect continued pricing strength and allocation dynamics into 2026. Long-term supply agreements and the rapid adoption of next-generation nodes (like BICS-8) are likely to become industry standards, raising the bar for technology investment and partnership depth. For storage and semiconductor investors, the mix shift toward enterprise SSDs and AI-centric architectures signals a multi-year tailwind for those with leading-edge technology and capital discipline.