Citi Research stated that Micron Technology's (MU.US) latest fourth-quarter results further confirm the ongoing supply tightness in the NAND flash memory market, and the industry's tight supply-demand situation could extend through 2028, providing support for memory chip prices.

Citi believes that continuous growth in artificial intelligence (AI)-driven data center demand will further improve NAND industry fundamentals and benefit SanDisk (SNDK.US).

Citi analyst Atif Malik reiterated a "Buy" rating on SanDisk in a research report released on Thursday, maintaining a price target of $2,100. He noted that Micron's latest results reflect that NAND market supply-demand dynamics remain favorable to suppliers, while long-term demand growth from AI infrastructure buildout also improves the predictability of future industry revenue and profitability.

Micron NAND Revenue Surges 42% Quarter-over-Quarter, Prices Rise About 30%

Micron's fourth-quarter results showed strong NAND business growth, with product price increases serving as a key driver. According to Citi's analysis, Micron's fourth-quarter NAND business revenue grew 42% quarter-over-quarter, NAND bit shipments rose 10% quarter-over-quarter, and average selling prices increased approximately 30%.

This price increase was notably higher than the market consensus expectation of 20%, but slightly below Citi's previous forecast of 34%, reflecting that NAND market supply tightness remains significant.

It is worth noting that NAND business revenue growth significantly outpaced shipment growth, indicating that price increases contributed prominently to revenue growth. With relatively constrained supply and continuously growing demand, memory chip manufacturers have gained stronger pricing support, which is also an important reason why Citi continues to be bullish on NAND industry fundamentals.

Industry Supply Tightness May Persist Through 2028

Regarding future supply-demand trends, Micron management expects that the company's NAND supply growth rate in calendar year 2026 will be lower than the overall industry supply growth rate. Looking ahead to 2027 and 2028, Micron expects global NAND industry bit shipment growth to be in the mid-20% range, but even as supply scale continues to expand, the industry may still face supply constraints during these two years.

This means that the tight supply-demand situation in the NAND market may not be a short-term phenomenon, but could potentially extend through 2028. Citi noted that although Micron's judgment on future industry bit shipment growth is higher than SanDisk's previously estimated mid-teens compound annual growth rate, the bank remains positive on the NAND market.

In Citi's view, the key to determining the industry outlook is not only supply growth rate, but also whether demand can continue to absorb new capacity. As AI data centers raise increasingly higher requirements for storage capacity and data processing efficiency, NAND demand is expected to receive long-term support.

AI Data Center Demand Continues to Grow, SSD Applications Become an Important Driver

Citi believes that AI-driven data center construction is one of the important long-term factors supporting NAND demand, especially the increasing use of solid-state drives (SSDs) in AI inference processes.

Among these, one noteworthy application is transferring some key-value cache (KV Cache) data from more expensive storage resources to more cost-effective SSDs. KV Cache is a caching mechanism used by large language models during inference to save previously computed results, which can reduce redundant computation and improve the efficiency of model request processing.

As AI model scale expands and inference tasks increase, cache data's occupation of storage resources may also continue to grow. By transferring some cache data to SSDs, data centers have the opportunity to meet storage needs while reducing overall operating costs.

Citi believes that such applications are expected to drive data centers to continuously increase demand for NAND flash memory and bring more sustained growth momentum to the industry. Compared with traditional consumer electronics demand, AI data center-related investment may also provide new growth sources for NAND suppliers.

Citi Maintains Buy Rating on SanDisk, Bullish on Long-Term Supply-Demand Fundamentals

Based on the industry signals from Micron's latest results, Citi continues to be optimistic about SanDisk's business prospects and maintains its $2,100 price target.

Malik stated that AI-driven data center demand is sustainable, especially the trend of using more cost-effective SSDs to handle some KV Cache data, which will further support NAND industry supply-demand fundamentals. At the same time, improved long-term demand visibility also helps strengthen market confidence in SanDisk's future business performance.

Citi specifically noted that although Micron's expectations for future industry bit shipment growth are higher than SanDisk's previous judgment, considering the sustainability of AI demand and business visibility brought by long-term agreements, the bank still maintains a positive view on SanDisk.

Overall, Micron's fourth-quarter NAND business revenue growth of 42% quarter-over-quarter and price increases of approximately 30% further highlight the current supply-demand tightness in the memory market. Against the backdrop of continuous AI data center expansion and increasing SSD application scenarios, Citi believes the NAND industry is expected to maintain a favorable supply-demand environment in the coming years, and SanDisk is also expected to benefit from this trend.