SanDisk Corp. delivered an explosive third-quarter performance, yet its shares declined in after-hours trading.

Following the U.S. market close on April 30, SanDisk reported fiscal third-quarter results that significantly surpassed market expectations. After already achieving a 97% sequential increase in the third quarter, the company further projected a median revenue growth of approximately 35% for the fourth quarter.

Key financial highlights include:

- Revenue of $5.95 billion, nearly double the previous quarter's figure and substantially above analysts' forecast of $4.72 billion. - Adjusted earnings per share of $23.41, far exceeding the market expectation of $14.51.

For the fourth quarter, the company anticipates revenue between $7.75 billion and $8.25 billion, with a midpoint around $8 billion, significantly higher than the market's projection of $6.65 billion. Adjusted EPS is expected to range from $30.00 to $33.00, also above the analyst consensus of $24.60.

The primary driver behind this performance surge is the demand from AI data centers for NAND flash memory and storage solutions. The company reported that its data center business revenue grew 233% sequentially and 645% year-over-year in the third quarter, making it the fastest-growing segment. Management emphasized a strategic shift of its product portfolio towards "highest value end markets," particularly data centers.

However, the market reaction was not aligned with these strong results. Despite exceeding both earnings and guidance estimates, SanDisk's stock fell over 7% in after-hours trading.

This discrepancy stems from a fundamental contradiction: while the company's fundamentals are robust within a strong AI storage cycle upturn, its stock price has already surged more than 3300% over the past 12 months and approximately 360% year-to-date, indicating that substantial optimism is already priced in.

**Data Center Demand Surge Drives Near-Doubling of Revenue**

SanDisk's third-quarter revenue increased 97% sequentially from $3.025 billion in the previous quarter and grew 251% year-over-year from $1.695 billion. The core growth driver was the data center business, which generated $1.467 billion in revenue, a 233% sequential increase and a staggering 645% year-over-year surge. Revenue from the Edge business reached $3.663 billion, up 118% sequentially and 295% year-over-year. The Consumer business revenue was $820 million, down 10% sequentially but still up 44% compared to the same period last year. In terms of profitability, the GAAP gross margin for the quarter was 78.4%, a significant increase of 27.5 percentage points from the previous quarter's 50.9% and a dramatic 55.9 percentage point improvement from the 22.5% margin a year ago. GAAP operating profit soared to $4.111 billion from $1.065 billion last quarter, representing a 286% sequential increase.

**Fourth-Quarter Guidance Revised Upward**

If the third-quarter performance was exceptionally strong, the fourth-quarter guidance suggests demand has not yet peaked. SanDisk forecasts for the fourth quarter:

- Revenue between $7.75 billion and $8.25 billion; Non-GAAP gross margin between 79.0% and 81.0%. - Non-GAAP operating expenses between $480 million and $500 million; Non-GAAP adjusted EPS between $30.00 and $33.00.

Based on the midpoint, the company expects fourth-quarter revenue of approximately $8 billion, representing a 34.5% increase from the third quarter's $5.95 billion. The midpoint for adjusted EPS is approximately $31.50, about 35% higher than the third quarter's $23.41. Previous market expectations were for fourth-quarter revenue of about $6.65 billion and adjusted EPS of $24.60. The company's guidance midpoints exceed these estimates by approximately 20% and 28%, respectively. Crucially, the gross margin guidance points further upward to 79%-81%, indicating that the company expects to maintain, and potentially improve upon, the exceptionally high profitability levels achieved in the third quarter.

**New Business Model: Multi-Year Agreements Enhance Revenue Visibility**

SanDisk management maintains that the massive data storage demand fueled by AI shows no signs of slowing. CEO David Goeckeler described the quarter as a "fundamental inflection point" for the company. He stated that SanDisk is deliberately shifting its business mix towards high-value end markets like data centers, while advancing a new business model centered on multi-year customer agreements backed by firm financial commitments. The company disclosed it had signed three agreements under this new model by the end of the third quarter and added two more since the fourth quarter began. Goeckeler emphasized that this transformation will drive a "structural improvement" in profitability with greater sustainability. He also noted the company's debt-free balance sheet, strong cash generation capabilities, and a recently authorized board share repurchase program, positioning it well for long-term shareholder value creation.

**Stock Soared Over 3300%, High Valuation Concerns Linger**

SanDisk was spun off from Western Digital and began trading independently in February 2025, with an initial market capitalization of approximately $5 billion. Since then, driven by the explosion in AI data storage demand, the stock has become one of the market's standout performers. The stock has surged over 3300% since its debut, adding more than $150 billion in market cap, ranking it as the top performer in the S&P 500 over the past 12 months, with a year-to-date gain of around 360%. However, the sell-off following the strong earnings and guidance indicates investor concerns about the sustainability of such a high valuation. The law of large numbers implies that maintaining the current growth trajectory will require an increasingly substantial base.