Both SanDisk Corp. and Western Digital delivered robust quarterly results, but Goldman Sachs believes excessively high market expectations will prevent these stocks from benefiting from the strong performance, predicting downward pressure on both shares following the earnings release.

On August 5, the James Schneider team at Goldman Sachs published two reports analyzing the latest earnings from SanDisk and Western Digital. The current core issue in the storage industry is not a deterioration in fundamentals, but rather that market expectations have already outpaced reality.

Both companies reported impressive quarterly results, with revenue, gross margins, and earnings per share exceeding expectations to varying degrees. However, when expectations already imply assumptions of "perfect execution and sustained outperformance," any guidance that merely returns to a normal trajectory is interpreted as a negative signal by the market.

For investors, Goldman Sachs advises caution regarding the risk of a sentiment-driven pullback in both stocks over the short term. The firm also noted that, given the significant overlap in end-market exposure between Micron Technology and SanDisk Corp., the negative reaction to SanDisk Corp.'s earnings is likely to spill over to Micron Technology, urging investors to monitor the short-term price action of Micron Technology shares.

Western Digital: Gross Margin Exceeds, but Guidance Lacks Surprise

Western Digital reported second fiscal quarter (ending June 2026) revenue of $3.747 billion, roughly in line with Goldman Sachs' estimate of $3.763 billion and the Wall Street consensus of $3.714 billion, representing a 43.8% year-over-year increase.

Gross margin came in at 54.4%, exceeding Goldman Sachs' forecast of 52.4% and the market consensus of 51.9% by approximately 200 to 250 basis points. Non-GAAP earnings per share were $3.56, above Goldman Sachs' estimate of $3.43 and the consensus of $3.35, an outperformance of roughly 4% to 6%.

For the third fiscal quarter guidance, Western Digital provided a revenue midpoint of $4.1 billion, broadly in line with Goldman Sachs' estimate of $4.166 billion and the market consensus of $4.04 billion.

The gross margin guidance range is 55% to 56%, above Goldman Sachs' forecast of 54.1% and the consensus of 54.0%, exceeding by approximately 140 to 148 basis points. The non-GAAP earnings per share guidance midpoint is $4.00, slightly above Goldman Sachs' $3.94 and the consensus of $3.80.

Goldman Sachs noted that market expectations were highly optimistic heading into the earnings season. Investors had high confidence in continued HDD pricing improvements, margin expansion momentum, and long-term demand visibility driven by capital expenditures from large-scale cloud computing companies.

Against this backdrop, guidance that merely met market expectations was considered "not surprising enough."

Goldman Sachs maintains a 12-month price target of $650 for Western Digital, based on 23 times normalized earnings per share of $28.00, implying approximately 18.5% upside from the current price of $548.56. The rating remains "Neutral."

SanDisk Corp.: Strong Quarter, but Forward Guidance Disappoints

SanDisk Corp. reported second fiscal quarter revenue of $8.965 billion, beating Goldman Sachs' estimate of $8.841 billion and the Wall Street consensus of $8.713 billion, representing a remarkable 371.6% year-over-year increase.

Gross margin was 84.6%, roughly in line with Goldman Sachs' forecast of 84.3% but above the market consensus of 83.6%. Non-GAAP earnings per share were $39.25, exceeding Goldman Sachs' estimate of $38.16 and the consensus of $35.45, an outperformance of roughly 3% to 11%.

However, the third fiscal quarter guidance significantly disappointed the market.

SanDisk Corp. provided a revenue guidance midpoint of $10.55 billion, below Goldman Sachs' estimate of $11.653 billion and the market consensus of $11.148 billion, representing a shortfall of 9.5% and 5.4%, respectively.

The gross margin guidance midpoint is 84.0%, below Goldman Sachs' forecast of 84.7% and the market consensus of 86.7%, a gap of approximately 74 to 267 basis points. The non-GAAP earnings per share guidance midpoint is $45.00, below Goldman Sachs' estimate of $49.95, but broadly in line with the market consensus of $45.34.

Goldman Sachs pointed out that while SanDisk Corp.'s stock has fallen approximately 40% from its June highs, partially digesting some overly optimistic expectations, market sentiment before the earnings season was still buoyed by strong NAND pricing, accelerated adoption in AI data centers, and robust results from peers. This means that the below-consensus guidance will likely continue to pressure the stock price.

Goldman Sachs maintains a "Buy" rating on SanDisk Corp. and a 12-month price target of $2,200, based on 20 times normalized earnings per share of $110, implying approximately 54.1% potential upside from the current price of $1,427.62.

Regarding industry-wide implications, Goldman Sachs believes SanDisk Corp.'s below-consensus guidance will weigh on overall sentiment in the storage sector. The report explicitly notes that, given similar end-market exposure, Micron Technology is expected to experience a negative reaction following SanDisk Corp.'s earnings release.