00:00 Speaker A
the print is phenomenal Josh, but we’ve really come to expect this from SanDisk. I mean, at this point, if they’re not reporting just an unbelievable beat, I would be a little disappointed. So these numbers were exceptional. You talked about the beats just there, 20% beat on sales, 50% beat on earnings and pretty much similar for the guidance relative to consensus and relative to our model.
00:30 Speaker A
I mean, it’s just unbelievable. And the context of what’s going on here is that these memory chips what we call NAND are supply constrained. So there’s huge AI demand, there aren’t enough of these chips to go around and they’re pretty commodity like. And so that just causes prices to go through the roof. And that is really what’s driving all of this revenue and all of this profitability for SanDisk. When we look at incremental gross margin on their growth, we’re seeing numbers above 90% for that gross profit. So that means that pricing is driving essentially all of this growth on the same amount of chips that are actually going out quarter to quarter. So it’s exceptional. Now,
01:12 Speaker A
you mentioned that a lot of the street has a buy rating on the stock. We are one of that 20% that don’t. And really this comes down to when we take a longer term view here, we think that this pricing up cycle is finite. We think it’s gonna go on for the next couple of years here, but once it peaks, we think investors may get caught holding the bag with a precipitous down cycle thereafter when pricing comes back down to earth. So that keeps us on the sidelines here, but in the short term, the numbers they just reported incredible.
01:48 Speaker B
Yeah, in your note to your clients, you say over the next few years will pricing, growth, profitability for this name, you expect to be in your words, eye watering. Um but as you noted, you do have the equivalent of a cell and I guess what you’re saying is this massive A I cap X build out, when do you see that ending in a few years in 2028?
02:08 Speaker A
It’s not even necessarily related to that. It’s really related to the relationship between what demand looks like and supply. And so ignore the capex for for A I on the demand side of things for a second here. This is about the supply in our review. We see numerous manufacturing facilities from Sandisk from its peers, SK Hynix and Samsung coming online in 2027 and in 2028 to bring a massive amount of supply onto the market that we just don’t have today. And so when that happens, our forecast is that that’s going to bring prices back down to earth, that’s going to bring SanDisk’s profitability, sales down to earth. And so even if you see A I demand continue chugging along at the rate that it has been, if you get much more supply to meet that demand, that can cause a down cycle in these NA prices. And so we’re really looking out past the next two to three years over a 5 10 year period and we think the shares look too high with that context in mind.