Sandisk Just Guided to Turning Half Its Revenue Into Free Cash Flow Through 2030

Memory maker Sandisk (NASDAQ: SNDK) held its investor day on Thursday, and management used it to answer the question hanging over the stock all year: What does this business look like once the boom is no longer a surprise?

The company's new financial model for fiscal 2028 through 2030 calls for revenue growth in the mid-to-high teens, non-GAAP (adjusted) gross margins near 80%, operating margins near 75%, and adjusted free cash flow of about 50% of revenue.

Investors liked the answer. Shares jumped about 14% on Thursday and trade near $1,528 as of this writing. Even so, the stock would need to climb more than 50% to revisit its 52-week high of $2,354.39.

A company converting half its revenue into free cash would rank among the most profitable large businesses in the world. Whether investors can trust the targets is another matter.

Image source: Getty Images.

Peak economics as the plan

The targets land differently once you set them beside what Sandisk just reported. A year ago, this business ran a 26.2% gross margin and roughly broke even. In the fiscal fourth quarter, revenue reached $8.97 billion, up 372% year over year, and gross margin hit 84.6%.

Fiscal 2026 as a whole (the fiscal year ended July 3, 2026) captured the shift. Revenue climbed 175% year over year to $20.25 billion, and net income totaled $11.43 billion, or $73.76 per share. Adjusted free cash flow was $8.7 billion -- about 43% of revenue, and a figure that already strips out roughly $2.5 billion of customer prepayments.

And management expects more in the near term. Its guidance puts fiscal first-quarter revenue between $10.3 billion and $10.8 billion, with non-GAAP earnings per share in a $44-to-$46 range. The fiscal fourth quarter came in at $39.25 on the same measure.

To me, the new model is less a forecast of change than a promise that the peak holds. Gross margins near 80% sit just below the fiscal fourth quarter's level. Operating expenses stay around 5% of revenue. And cash conversion actually improves, from fiscal 2026's 43% to about 50%.

Management also said it expects to return 100% of excess cash to shareholders after investing in the business, on top of the $15.5 billion buyback authorization already in place.

Half the bits are already committed

Whether any of this holds comes down to pricing, and pricing is where Sandisk's answer got specific. The company has signed eight customers to New Business Model agreements, or NBMs -- multiyear supply deals with committed volumes and structured pricing. Those deals cover about half of Sandisk's expected bits in fiscal 2027 and about two-thirds in fiscal 2028.

"The total expected revenue from all our NBMs we have signed is a minimum of $93.9 billion, assuming floor pricing," chief financial officer Luis Visoso said when the company reported fiscal fourth-quarter results on Aug. 5. The deals also carry financial guarantees (cash deposits and financial instruments totaling $16.5 billion).

For perspective, Sandisk produced $20.25 billion of revenue in its record fiscal 2026. The contracted minimum alone is worth more than four years of that.

Supply discipline points the same way. Sandisk grows supply "primarily through nodal transitions rather than wafer additions," CEO David Goeckeler said on the same call, and those upgrades deliver bit growth in the mid-to-high teens. In other words, the growth in the model tracks bits the company can produce largely without adding wafer capacity -- which is why capital spending stays small and cash conversion stays high.

Too good to last?

The market, of course, has its doubts. At the current price, shares fetch about 21 times fiscal 2026 earnings. Against the roughly $213 per share analysts forecast for fiscal 2027, the multiple falls to about 7. Pricing like that suggests investors expect earnings to fall well short of the model -- a memory-cycle bust, not three more years at the peak.

The skepticism has history behind it. Memory pricing has moved in cycles, and today's margins arrived with a price boom barely a year old. The floors protect pricing on the committed volumes, but about half of fiscal 2027 bits (and a third of fiscal 2028) will still sell at whatever the market pays. If pricing rolls over, the model's margins could come down fast.

Still, I think Thursday moved the argument. A year ago, this business roughly broke even. Now a floor under about $94 billion of revenue is a matter of contract, with $16.5 billion of guarantees behind it, and management is committing to hand back whatever cash the business doesn't need. The margin targets are the part Sandisk still has to earn, one quarter at a time.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.