Data Centers Now Deliver a Third of Sandisk's Revenue -- $2.98 Billion in a Single Quarter

Sandisk (NASDAQ:SNDK) built its name on memory cards and flash drives. But in its fiscal fourth quarter of 2026, which ended July 3, the company sold $2.98 billion of storage to datacenter customers -- about a third of its $8.97 billion in total revenue. A year earlier, that datacenter business generated just $213 million in quarterly sales.

The scale of the change goes beyond one quarter. Sandisk separated from Western Digital in February 2025, and in fiscal 2026, its first full year on its own, it generated $20.25 billion of revenue, up 175%, with the datacenter piece up 437%.

But the bigger change isn't who is buying the company's storage. It's how they're buying it.

Image source: Getty Images.

A steep mix shift

Showing just how fast the customer base is moving, datacenter revenue has climbed for three straight quarters. It was $440 million in the fiscal second quarter, about 15% of the company's revenue. By the fiscal third quarter, it had grown to $1.47 billion, about 25%. And it hit $2.98 billion in the fourth, about a third of the total.

That said, the edge business, which sells flash storage to makers of PCs, smartphones, gaming consoles, and cars, is still the biggest piece of the company, at $5.43 billion of fiscal fourth-quarter revenue.

Consumer products, however, contributed just $556 million, about 6% of the quarter and down 5% year over year. In other words, the retail cards and drives Sandisk is named for are now its smallest business.

What do the contracts guarantee?

Memory pricing is famously boom-and-bust, and Sandisk's answer is what it calls the New Business Model (NBM) -- multiyear supply agreements signed directly with large datacenter and edge customers.

The terms are what make the shift structural. Chief financial officer Luis Visoso said on the company's August earnings call that Sandisk now has 10 of these agreements across eight customers, five of them signed since April. The agreements run as long as five years, with a weighted average duration of more than four years. Pricing includes fixed and variable elements, with the variable portion subject to floors and ceilings. In total, the NBMs Sandisk has signed represent a minimum of $93.9 billion in expected revenue, assuming every variable price settles at its floor. The deals are also backed by $16.5 billion of customer cash deposits and financial instruments.

The contracted share is still growing, too. Management expects NBMs to cover about half of Sandisk's bit shipments in fiscal 2027, and about two-thirds in fiscal 2028.

Of course, contracted volume isn't the same thing as guaranteed revenue, and the ceilings may cap Sandisk's upside if spot prices keep climbing. But I'd argue the floors matter more than the $93.9 billion headline number. Minimum prices under a growing share of shipments change the downside math in an industry known for brutal crashes.

Higher prices did most of the work

For all that structure, fiscal 2026 was mostly a pricing story. Sandisk's total products sold rose by a mid-teens percentage on an exabyte basis (a measure of raw storage volume shipped), while revenue rose 175%. And management said about two-thirds of the fiscal fourth quarter's sequential revenue growth came from higher pricing, with one-third from higher volumes.

That pricing boom shows up most clearly in profitability. Gross margin reached 84.6%, up from 26.2% in the year-ago period.

The company also swung to $6.9 billion of quarterly net income from a small loss a year earlier. And free cash flow for the full year went from a $120 million outflow in fiscal 2025 to $11.5 billion.

Management doesn't expect a cooldown yet, either. It guided fiscal first-quarter 2027 revenue between $10.3 billion and $10.8 billion, up 15% to 20% sequentially, with gross margin expected to stay at 83% to 85%.

The market remains skeptical, though. Shares trade around $1,537 as of this writing, down about 35% from a 52-week high, at about 21 times fiscal 2026 earnings.

Measured against expected earnings for fiscal 2027, the price-to-earnings multiple falls to about 7. A steep decline in memory pricing, in other words, is arguably already priced in.

Is Sandisk a different company now? On the customer side, I think it clearly is. A third of revenue comes from data centers, about half of this fiscal year's shipments are already committed under contract, and there are price floors where prices used to float freely.

However, the new model hasn't been tested by a downturn yet. And even Sandisk's own long-term financial model, laid out at its August investor day, calls for non-GAAP (adjusted) gross margins of about 80% for fiscal 2028 through 2030 -- below the 84.6% it just reported. The floors cushion a fall in contracted pricing. They don't make fiscal 2026's boom prices permanent.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Western Digital. The Motley Fool has a disclosure policy.