Key Points
SanDisk and Western Digital both offer memory storage solutions for AI processors and data center servers.
SanDisk specializes in NAND flash, a market that has more long-term growth potential than Western Digital's hard disk drives.
Western Digital has higher profit margins, but the combination of SanDisk's explosive net income growth and Micron's precedent indicates that meaningful margin expansion is possible.
Semiconductor chips like the ones Nvidia(NASDAQ: NVDA) provides have been powering the expansion of artificial intelligence (AI). Without these high-powered processors, AI models like ChatGPT wouldn't exist.
The companies that supply those AI processors have been compelling opportunities for years, but higher future returns may come from companies in other parts of the data center supply chain. SanDisk(NASDAQ: SNDK) and Western Digital(NASDAQ: WDC) create memory storage chips and other data storage hardware that are embedded within AI platforms and adjacent to them in servers. (The high-end processors that enable AI workloads have a bunch of smaller components inside them, including GPUs, CPUs, and memory chips.)
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Because demand for memory has surged well beyond what suppliers are able to manufacture, both of these stocks have recently experienced parabolic growth. SanDisk is up by almost 3,000% over the past year, while Western Digital has rallied by almost 1,000% over the same stretch. There's plenty to like about both of these stocks, but if you're wondering which looks like the smarter buy now, here's what you should know.
Image source: Getty Images.
NAND flash is better than hard disk drives for the AI boom
Data storage is a fundamental pillar of AI infrastructure, but some types of memory are better than others. SanDisk produces NAND flash, which performs at a higher level than hard disk drives, the memory storage solution that Western Digital produces at scale. While hard disk drives won't be eliminated entirely from AI infrastructure, NAND flash is the preferred option.
Investors can see this fundamental truth play out in the companies' earnings reports. Western Digital delivered solid 25% year-over-year revenue growth to $3.02 billion in its fiscal 2026 second quarter (which ended Jan. 2). The company has also presold all of its 2026 hard drive production capacity, reflecting incredible demand from AI data centers and hyperscalers.
SanDisk is outdoing these growth numbers, and the long-term trend in NAND flash suggests this will be a common occurrence. It slightly edged out Western Digital with $3.03 billion in total sales in its fiscal Q2 (which also ended Jan. 2), but that represented a 61% year-over-year increase.
Their respective outlooks further display the gap between NAND flash growth and hard disk drive expansion. SanDisk management is guiding for $4.6 billion in fiscal Q3 revenue at the midpoint, which would equate to 51.8% sequential growth. Western Digital anticipates $3.2 billion in fiscal Q3, which would only be 6% sequential growth.
Western Digital has higher margins
Soaring revenue has been accompanied by surging net profit margins for both companies, but Western Digital has the lead. Western Digital closed out fiscal Q2 with a 61.1% net profit margin compared to SanDisk's 26.6%.
SanDisk has the potential to improve margins, which can make it more attractive in the long run. The company posted 617% sequential net income growth, comfortably outpacing its 31% sequential revenue growth. SanDisk also did this while reducing its operating expenses by 7% sequentially. Lower expenses combined with soaring revenue can set the stage for long-term profit margin expansion.
There is also precedent in the NAND flash industry, since rival NAND flash memory producer Micron(NASDAQ: MU) jumped from a 38.4% net profit margin to a 57.7% net profit margin within a single quarter. This demonstrates that NAND flash providers can see quick profit margin boosts.
SanDisk's potential to boost its profit margins is the icing on the cake, but its higher revenue growth and positioning in NAND flash are what make it a better buy than Western Digital.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology, Nvidia, and Western Digital. The Motley Fool has a disclosure policy.
