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Forget the Chips, Buy Memory: Why AI Money Is Moving to Storage

Author: Jeffrey Neal Johnson. Published: 1/22/2026. 

Data center storage servers with SSD/HDD drive bays glowing, symbolizing AI-driven memory demand.

Quick Look

  • SanDisk is capitalizing on a structural shortage of semiconductor wafers, which has significantly increased the pricing power of its enterprise solid-state drives.
  • Western Digital is seeing renewed demand for its high-capacity hard drives, which serve as the primary storage vaults for massive artificial intelligence datasets.
  • Institutional investors are increasingly targeting the memory sector as the industry realizes that data storage capacity is the next major infrastructure bottleneck.

While the stock market has spent the last two years obsessed with logic chips and GPUs, a significant shift is occurring in the hardware sector. The compute trade, which represents a bet on the processors that allow AI models to operate, is taking a breather. In its place, smart money is rotating aggressively into the hardware required to store the vast amounts of data those models need.

This shift was on full display during the first month of 2026. SanDisk (NASDAQ: SNDK) surged roughly 90% on heavy volume, hitting an all-time high near $459. Its former parent, Western Digital (NASDAQ: WDC), rose about 23% over the same period, continuing a rally that has more than doubled the stock price over the last 12 months.

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The catalyst is a realization among institutional investors: AI is not just about processing speed; it is about data capacity. As AI models grow larger, the bottleneck has shifted from the processor to storage drives. The infrastructure build-out has entered a new phase, creating distinct opportunities for the two most prominent names in American memory.

Supply Shock: The Zero-Sum Game

To understand why SanDisk and Western Digital shares are rallying, investors must examine the supply side. Semiconductormanufacturing is effectively zero-sum: a factory, or fab, can only process a limited number of silicon wafers each month. Those wafers are the raw canvases on which chips are printed.

Major manufacturers are under intense pressure to produce High Bandwidth Memory (HBM) — the specialized, stacked memory used on NVIDIA (NASDAQ: NVDA) GPUs to enable very fast calculations. To satisfy that demand, production lines have been converted, dedicating a large share of capacity to HBM.

That reallocation has created a sizable supply void for standard NAND flash and DRAM: there simply aren’t enough wafers left to produce conventional storage chips.

  • The Supply Shock: With fewer machines making standard memory, global supply has contracted.
  • The Demand Spike: Data centers are consuming more than 70% of the world’s high-end memory production.
  • The Result: A classic economic squeeze. With supply down and demand up, manufacturers have regained pricing power and can raise prices significantly without materially reducing demand.

SanDisk: The Hot-Tier Speed Demon

SanDisk, now fully independent after its spin-off from Western Digital in early 2025, is the primary beneficiary of the need for speed. In data centers, SanDisk supplies the hot tier of storage — fast solid-state drives (SSDs) used when data must be accessed or written instantly.

The bullish case for SanDisk centers on a technical requirement in AI training called checkpointing.

As models train, they save their progress frequently — often every few minutes — to protect against power failures or system crashes. If a model crashes without a recent checkpoint, weeks of compute and millions of dollars in electricity can be lost. Checkpointing therefore demands massive amounts of ultra-fast storage to write data instantly, and SanDisk’s enterprise SSDs are the industry standard for this task.

Financials reflect this surge in demand, particularly through operating leverage. Because SanDisk has relatively high fixed costs to run its factories, once those costs are covered, price increases flow straight to the bottom line — which is why earnings can grow faster than revenue.

  • Revenue Growth: Fiscal 2026 revenue is projected at $10.45 billion, a 42% year-over-year increase.
  • Earnings Expansion: Earnings per share (EPS) estimates have jumped from roughly $2.99 in 2025 to a projected $13.46 for 2026.

Operational clarity has also improved. The company has streamlined its identity, consolidating consumer products under the SanDisk Optimus line — a signal to investors that it is focused as a pure-play flash-memory provider.

Western Digital: The Cold-Tier Vault

If SanDisk is the sprinter, Western Digital is the marathoner. As a leading hard-disk drive (HDD) manufacturer, Western Digital supplies cold-tier storage.

AI models are trained on datasets of enormous size — petabytes of video, text and images. Storing all training data on high-performance SSDs would be prohibitively expensive, so companies keep bulk data in cost-effective HDD-based data lakes.

Western Digital effectively owns much of the infrastructure for these massive digital reservoirs.

Western Digital’s analyst communityhas recognized this duopoly-like position it shares with Seagate (NASDAQ: STX):

  • Citigroup raised its target to $280 on Jan. 20, 2026, an increase of over 25%.
  • Rosenblatt Securities raised its price target 21% to $270 the same day.
  • Bank of America pushed its target up 13% to $257.

For investors seeking stability over high beta, Western Digital offers a compelling income component. The Board recently approved a 25% increase to the quarterly dividend, raising it to 12.5 cents per share.

Looking ahead, the company is protecting its technical lead with HAMR (Heat-Assisted Magnetic Recording) technology. Conventional drives are approaching a physical limit: magnetic bits get so small they become unstable. HAMR uses a tiny laser to locally heat the disk surface for a fraction of a second, allowing data to be written more tightly. That enables drives exceeding 40 terabytes and helps ensure WDC remains relevant as data generation accelerates.

The Memory Supercycle Is Just Beginning

The AI trade is not over; it has simply moved downstream. The constraints on silicon wafers are likely to persist through 2026, suggesting the current pricing power for memory manufacturers is more than a short-term blip — it reflects a structural shift.

Investors now have two clear ways to play this trend. SanDisk offers higher-beta exposure to aggressive growth and rising earnings, driven by immediate AI-processing and checkpointing needs. Western Digital offers a more stable, income-generating path backed by the exponential growth of data archiving and its HAMR roadmap.

As the shortage of memory chipstightens its grip on the global electronics market, the floor for these stocks remains elevated. In 2026, storage is increasingly becoming the new compute.

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Published by RJ Hamster

I was born on 6 August 1956 in San Francisco, California to Janet and (the late) Richard Hovis. I grew up in Santa Monica, California where I attended elementary, junior high school, and high school (graduating in 1974), in addition to involvement in sports and recreation (Little League +, the Boy’s Club ++). Further, it was in elementary school – St. Augustine’s By-the -Sea Parish School that I found, and made the choice to truly journey with God. I attended Arizona State University from 1974 to 1977 – seeking to become an architect, however, I was not accepted, and, as such, I graduated with a Liberal Arts degree. Upon graduation from Arizona State University, I attended Cal Poly San Luis Obispo and studied City and Regional Planning at the Master’s level. I successfully completed one (1) year in a two (2) year program – I did not complete the Master’s degree in City and Regional Planning – due to personal reasons. I returned to Santa Monica where I started (October 1979) my career as graphic designer with Exxon Company, USA. I spent five years with Exxon Company, USA. While working with Exxon Company, USA I was accepted into architectural school – Sci-Arc in Southern California, however, I did not attend preferring to stay with Exxon.. In 1982 I married Laura Flosi and in April 1983 we had our one and only child – Lauren Alain Hovis – a gift from God. We moved to Phoenix, Arizona in 1984 from Los Angeles, where I went to work as a graphic designer with Kitchell CEM (from 1985 -1987). From 1987 – 1995 I was an independent contractor, and a registered representative in mortgage finance, financial management, graphic design, and drafting. Further, I attended the University of Phoenix and successfully obtained a Master’s in Business Administration (MBA) in 1982. I was also a member of the Scottsdale Jaycees, where I became very involved in community events and projects. In 1994, I accepted a cartography position with the Defense Mapping Agency in Reston, Virginia. As such, I relocated from Phoenix to Reston. In 1998, I was accepted and worked as a Visual Information Officer with the Central Intelligence Agency. In 2002, I worked as a Support Officer until my retirement (due to a need for shoulder surgery) in September 2018. Away from my Federal Government service, I have been involved in various organizations and activities in Northern Virginia. In November of 2011, I married Rebecca Ouellette in Santa Monica, California. I reside in San Tan Valley, AZ with my two hamster - Jess and Timothy, our fish, our lizard - RJ Lizard., and our cats - Pearl and Grey. As to hobbies, I enjoy playing sports, attending sporting events, mentoring individuals from financial management to hamsters, building models, photography, travel, multimedia design, managing partner for RJ Hamster, and jazz – smooth jazz to a samba or a bossa nova. Love and God Bless, Peter – aka RJ Hamster Jo hi

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