Citi Sees 50% Upside for Western Digital, NAND Price Cycle Far From Over

Citi Research released a report on May 19th, significantly raising the target price for SanDisk (SNDK.O) from $1,300 to $2,025, corresponding to a forecasted price-to-earnings ratio of 9 to 10 times for 2027, while maintaining a "Buy" rating. As of the close on May 18th, SanDisk's stock price was reported at $1,333.01, implying a target price with about 52% upside potential.

The direct trigger for this increase was the partner Kioxia's better-than-expected quarterly performance, which further reinforced Citi's core judgment that NAND storage demand remains robust and the pricing environment is highly favorable.

Kioxia's performance significantly exceeded expectations, with NAND pricing momentum notably strong

Kioxia's revenue for the March quarter reached 1.003 trillion yen, significantly exceeding market expectations of 923.7 billion yen; non-GAAP operating profit was 599.1 billion yen, also substantially above the expected 529 billion yen; the operating margin was nearly 60%, with revenue increasing by about 85% quarter-over-quarter and about 190% year-over-year.

Looking ahead to the next quarter, Kioxia's revenue guidance is 1.75 trillion yen, about 26% higher than market expectations; the operating profit guidance is over 1.3 trillion yen, nearly 40% higher than market expectations, with an expected operating margin of 74%, and average selling prices increased across all application scenarios. Kioxia's management anticipates a high double-digit percentage increase in bit growth for 2026 and expects demand to continue outpacing supply through 2027.

The NAND price increase cycle is expected to continue into 2026 and beyond

Citi's South Korean memory analyst, Peter Lee, expects that due to the storage demand driven by AI acceleration, global memory prices will show a continuous upward trend in the second half of 2026. Citi's forecast for NAND average selling prices is: a year-over-year increase of 186% in 2026, with a more significant increase of 265% for enterprise-grade solid-state drives (eSSDs). On a quarter-over-quarter basis, the average selling price of NAND is expected to rise by 45% in the second quarter.

This judgment is highly consistent with Citi's previous statement in the Micron Technology research report—AI data centers' demand for storage is driving the entire NAND industry chain into a new super price increase cycle.

Long-term agreements provide a bottom line guarantee for profits, and buybacks further support EPS

The structure of the long-term supply agreements (LTA) signed by SanDisk this year is designed to smooth cyclical fluctuations: even under the lowest pricing conditions, the gross margin can still be maintained above 80%; shipments during the contract period are pre-locked and gradually increasing, and financial guarantee clauses are automatically executed once triggered, with no room for renegotiation. Citi believes that this structure entitles SanDisk to a higher valuation premium relative to its peers and is an important basis for setting its target P/E ratio at 9 to 10 times (higher than Kioxia's 7 times and other peers' 6 to 7 times).

Additionally, SanDisk announced a $6 billion share repurchase authorization last quarter, which is about 3% of the current market value. Citi points out that, given the company's strong expected future free cash flow, the buyback has the potential to further drive an upward revision in EPS—every 1% reduction in the number of shares can increase EPS by about $2.

Earnings forecasts significantly raised

Citi raised its EPS forecast for SanDisk's fiscal year 2026 from $64.29 to $67.97; for the fiscal year 2027 from $182.26 to $217.70, which is about 29% higher than the market consensus; and for the fiscal year 2028 from $155.13 to $215.09, which is about 33% higher than the market consensus.

Main downside risks

Citi also pointed out three main downside risks: SanDisk's progress in expanding its share in the enterprise market may be slower than expected; a deteriorating macro environment may affect data center spending and AI-PC demand; supply and demand imbalances or price competition—especially aggressive share-grabbing behavior from Chinese manufacturers—could lead to significant price volatility and substantially compress profit margins.