The Memory Supercycle Is Here—2 Winners From 1 BreakupReported by Jeffrey Neal Johnson. Posted: 2/4/2026.
Article Highlights- SanDisk is experiencing explosive growth driven by the need for high-speed drives that save the progress of artificial intelligence models during training.
- Western Digital is securing its position as a pillar of stability by returning capital to shareholders while providing the data lakes needed for storage.
- A shortage of manufacturing capacity for standard memory chips has created a favorable supply environment, supporting durable pricing power for the industry.
While the broader stock market has spent years fixated on the processors that allow artificial intelligence (AI) to think, a massive rotation is occurring into the hardware required to provide AI with memory. Approximately one year ago, Western Digital (NASDAQ: WDC) spun off its flash memory business to create SanDisk (NASDAQ: SNDK) as a standalone company. The market response has been nothing short of historic.
SanDisk has surged roughly 1,500% since listing in early 2025, including a 140% gain in the last 30 days. As of Feb. 3, 2026, SanDisk stock is trading near all-time highs of $665. Meanwhile, its former parent, Western Digital, has also seen strong gains, rising about 350% over the past year to trade in the $280–$290 range.
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This divergence signals the arrival of a memory supercycle. The infrastructure required for AI has bifurcated the storage market into two necessary lanes: extreme speed and massive capacity. The breakup of SanDisk and Western Digital unlocked value by allowing each company to specialize in one of these lanes, creating two distinct investment profiles for shareholders.
SanDisk: The Vertical Growth Engine SanDisk is trading as a high-octane proxy for AI processing speed. The company’s recent results show this rally is driven by fundamentals rather than speculative hype. In its earnings report released on Jan. 29, 2026, SanDisk delivered numbers that surprised the Street:
- Revenue: $3.03 billion, a 61% increase year-over-year.
- Earnings Per Share (EPS): $6.20, beating Wall Street estimates by nearly $3.
- Gross margins: Expanded to 51.1%, up from 29.9% in the prior quarter.
The primary catalyst, however, is forward guidance. Management projects that EPS for the next quarter will double sequentially to $12–$14. That outlook implies the price-to-earnings ratio may compress, making the stock appear cheaper relative to its expected earnings power.
The driver behind this growth is a technical phenomenon known as AI checkpointing. When massive AI models are trained, they must frequently save progress to avoid losing work in the event of a system failure. If a model crashes without a recent checkpoint, it can waste millions of dollars in compute and time.
To prevent this, data centers rely on SanDisk’s enterprise solid-state drives (SSDs) to write vast amounts of data instantly. This demand is highly inelastic—companies cannot afford to train large models without fast, reliable checkpointing.
As a result, SanDisk is projecting gross margins of 65% to 67% next quarter, reflecting substantial pricing power.
Wall Street has been quick to adjust its outlook. After the report, UBS raised its price target to $1,000, Cantor Fitzgerald to $800, and both Barclays and Citigroup to $750. Those upward revisions, alongside boosts from other firms, indicate a consensus that the market had previously underestimated demand for high-speed storage.
Western Digital: The Value Fortress While SanDisk chases aggressive growth, Western Digital has positioned itself as a fortress of stability and capital return. The company focuses on cold storage—the massive repositories where data accumulates before it is processed.
On Feb. 3, 2026, Western Digital’s board authorized an additional $4 billion share repurchase program. That buyback signals management’s confidence that the stock remains undervalued despite the recent run.
Western Digital reported revenue of $3.02 billion for its fiscal Q2, a 25% year-over-year increase. Unlike the volatile flash market, the hard disk drive (HDD) market offers stability. AI training sets consist of petabytes of raw video, text, and images; storing much of that on flash is cost-prohibitive, so it resides in data lakes built on Western Digital’s high-capacity drives.
Key elements of the Western Digital thesis include:
- The 100TB roadmap: WDC unveiled a path to 100-terabyte drives, essential for hyperscalers.
- UltraSMR adoption: Newer UltraSMR drives, including the flagship 32TB and upcoming 40TB models, now account for over 50% of shipments, helping margin expansion.
- Long-term agreements: The company has secured multi-year purchase agreements with top customers that extend through 2028.
For income-minded investors, Western Digital offers a yield narrative, combining a $4 billion buyback authorization with a quarterly cash dividend of $0.125 per share.
The Wafer Wars & Zero-Sum Supply Chain Investors may worry that rapid price increases in the memory sector will lead to a supply glut and eventual price collapse. However, this cycle is different because of a zero-sum constraint in manufacturing. Global semiconductor fabs are prioritizing High Bandwidth Memory (HBM), which is physically stacked directly onto AI processors.
Because fabs have a finite number of silicon wafers they can process each month, the shift toward HBM leaves fewer wafers available for standard flash memory and storage controllers. This physical limitation creates a supply floor—manufacturers cannot instantly flood the market with new chips because raw materials and fab capacity are being diverted elsewhere. That supply-demand dynamic supports a durable pricing environment for both SanDisk and Western Digital.
SanDisk has also moved to secure its long-term supply. The company recently extended its joint venture with manufacturing partner Kioxia through 2034, locking in wafer supply for the next decade and removing a major operational risk.
On the technology front, SanDisk is pushing a new architecture called High Bandwidth Flash (HBF). Unlike traditional storage, HBF allows flash memory to sit closer to the processor, potentially handling AI inference tasks that were previously reserved for expensive DRAM. If broadly adopted, HBF could open a new addressable market for SanDisk and help justify a premium valuation.
The Storage Supercycle: Sprinters and Marathon Runners The AI trade has evolved. It is no longer just about the logic chips that do the thinking; it is about the gravity of the data itself. The spin-off of SanDisk from Western Digital has been a strategic win, creating two distinct investment profiles from the same legacy business.
SanDisk offers high-beta exposure to the immediate needs of AI processing speed—volatile, but with rapidly expanding earnings that support its valuation. Western Digital offers an infrastructure-like profile: lower volatility, steady capital returns via buybacks and dividends, and essential exposure to explosive data growth. In 2026, portfolios may benefit from allocating to both the sprinter and the marathon runner. |
