The Memory Supercycle Is Here-2 Winners From 1 Breakup

While the broader stock market has spent years fixated on the processors that allow artificial intelligence (AI) to think, a massive rotation is occurring into the hardware required to provide AI with a memory. Approximately one year ago, Western Digital (NASDAQ: WDC) spun off its flash memory business to create SanDisk (NASDAQ: SNDK) as a standalone entity. The market response has been nothing short of historic.

SanDisk has surged approximately 1,500% since listing in early 2025, including a 140% gain in just the last 30 days. As of Feb. 3, 2026, SanDisk stock is trading near all-time highs of $665. Meanwhile, its former parent company, Western Digital, has also seen stellar gains, rising about 350% over the last year to trade in the $280-$290 range.

This divergence signals the arrival of a memory supercycle. The infrastructure required for AI has bifurcated the storage market into two necessary lanes: extreme speed and massive capacity. The breakup of SanDisk and Western Digital unlocked value by allowing each company to specialize in one of these lanes, creating two distinct winning strategies for investors.

SanDisk: The Vertical Growth Engine

SanDisk is currently trading as a high-octane proxy for AI processing speed. The company’s recent performance confirms that this rally is driven by fundamental data rather than speculative hype. In its recent earnings report released on Jan. 29, 2026, SanDisk delivered numbers that stunned the Street:

• Revenue: $3.03 billion, representing a 61% increase year-over-year.
• Earnings Per Share (EPS): $6.20, beating Wall Street estimates by nearly $3.
• Gross Margins: Expanded to 51.1%, up significantly from 29.9% in the prior quarter.

However, the primary catalyst driving the stock is the forward guidance. Management projects that earnings per share (EPS) for the next quarter will double sequentially to $12-$14. This forecast suggests that despite the rising stock price, the price-to-earnings ratio (P/E) is compressing, making the stock arguably cheaper relative to its future earnings power.

The driver behind this explosive growth is a technical phenomenon known as AI Checkpointing. When massive AI models are being trained, they must constantly save their progress to prevent data loss in the event of a system failure. If a model crashes without saving, it can cost millions of dollars in wasted electricity and time. 

To prevent this, data centers use SanDisk’s Enterprise solid-state drives (SSDs) to write vast amounts of data instantly. This demand is inelastic; companies cannot afford to train AI without it.

Consequently, SanDisk is projecting gross margins of 65% to 67% next quarter, reflecting immense pricing power.

Wall Street has been quick to adjust its outlook. Following the report, analysts at UBS Group set a new price target of $1000, while Cantor Fitzgerald raised its to $800. Barclays and Citigroup also responded by boosting their targets, both setting a price of $750. The upward revisions from these four major firms, combined with those from others, clearly indicate a consensus: the market had previously underestimated demand for storage combined with speed.

Western Digital: The Value Fortress

While SanDisk chases aggressive growth, Western Digital has positioned itself as a fortress of stability and capital return. The company focuses on cold storage, the massive repositories where data lives and accumulates before it is processed.

On Feb. 3, 2026, Western Digital’s Board of Directors authorized an additional $4 billion share repurchase program. This buyback signals that management believes the stock remains undervalued despite its recent run.

Western Digital reported revenue of $3.02 billion for its fiscal Q2, a 25% increase year-over-year. Unlike the volatile flash market, the hard disk drive (HDD) market offers stability. AI training sets consist of petabytes of raw video, text, and images. Storing this on flash memory is too expensive, so it resides in data lakes built on Western Digital’s high-capacity drives.

Key highlights from the Western Digital thesis include:

• The 100TB Roadmap: WDC unveiled a path to 100-terabyte drives, essential for hyperscalers.
• UltraSMR Adoption: Newer UltraSMR drives, including the flagship 32TB and upcoming 40TB models, now account for over 50% of shipments, driving margin expansion.
• Long-Term Agreements: The company has secured purchase agreements with top customers that extend through 2028.

For dividend investors, Western Digital offers a yield narrative, combining a new $4 billion buyback authorization with a quarterly cash dividend of 12.5 cents per share. 

The Wafer Wars & Zero-Sum Supply Chain

Investors may worry that rapid price increases in the memory sector will lead to a supply glut, eventually crashing the market. However, the current cycle is different due to a zero-sum constraint in manufacturing. Global semiconductor factories are currently prioritizing High Bandwidth Memory (HBM), which is physically stacked directly onto AI graphics processors.

Because factories have a limited number of silicon wafers they can process each month, the shift toward HBM leaves fewer wafers available for standard flash memory and storage controllers. This physical limitation creates a supply floor. Manufacturers cannot simply flood the market with new chips because the raw materials are being diverted elsewhere. This supply-demand imbalance supports a durable pricing environment for both SanDisk and Western Digital.

Furthermore, SanDisk has moved to secure its long-term future. The company recently confirmed the extension of its joint venture with manufacturing partner Kioxia through 2034. This agreement secures wafer supply for the next decade, removing the company's primary operational risk.

SanDisk is innovating to break the memory wall with a new architecture called High Bandwidth Flash (HBF). Unlike traditional storage, HBF allows flash memory to sit closer to the processor, potentially handling AI inference tasks that were previously reserved for much more expensive DRAM. This innovation could open an entirely new total addressable market for SanDisk, further justifying the premium valuation.

The Storage Supercycle: Sprinters and Marathon Runners

The AI Trade has evolved. It is no longer just about the logic chips that do the thinking; it is about the gravity of the data itself. The spin-off of SanDisk from Western Digital has proven to be a masterstroke, allowing two different investment profiles to emerge from the same shadow.

SanDisk offers investors high-beta exposure to the immediate needs of AI processing speed. It is volatile, but its earnings are growing at a pace that justifies the valuation. Western Digital offers an infrastructure bond profile, providing lower volatility, consistent capital returns through buybacks and dividends, and critical exposure to the explosion of data volume. In the 2026 economy, portfolios should consider finding room for both the sprinter and the marathon runner.

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The article "The Memory Supercycle Is Here—2 Winners From 1 Breakup" first appeared on MarketBeat.