Storage shares tumble despite AI-fuelled earnings surge

Sandisk and Western Digital shares have slumped despite stronger-than-expected quarterly results, showing that investors are demanding ever more from companies whose valuations have soared on the artificial intelligence boom. The sell-off has also revived speculation that some speculative capital could be shifting towards cryptocurrency, although evidence of a sustained rotation into bitcoin remains limited.

Sandisk fell more than 13% during Thursday trading, while Western Digital dropped about 19%, extending declines that began after the companies reported results. Both stocks had entered earnings season carrying exceptional expectations following powerful rallies this year. Sandisk had risen more than fivefold during 2026 before the reversal, while Western Digital had more than tripled.

The reaction was striking because Sandisk’s underlying numbers were exceptionally strong. Fiscal fourth-quarter revenue reached about $8.97 billion, up 51% from the previous quarter and 372% from a year earlier. Adjusted earnings were $39.25 a share, while gross margin reached 84.6%. Data-centre revenue climbed to about $2.98 billion, more than doubling sequentially as demand for flash memory used in AI infrastructure accelerated.

Investors instead focused on what comes next. Sandisk expects fiscal first-quarter revenue of $10.3 billion to $10.8 billion. The midpoint was slightly below market expectations. The company also forecast a gross margin of 83% to 85%, implying little further expansion after the sharp rise achieved during the past year.

That mattered because Sandisk’s valuation had already incorporated assumptions that unusually tight NAND supply, strong AI demand and powerful pricing would continue lifting profitability. Even excellent earnings therefore fell short of the more aggressive expectations embedded in the share price.

Sandisk is also moving towards longer-term customer contracts designed to make the traditionally cyclical memory business more predictable. It has secured eight agreements representing at least about $93 billion of contracted business through 2028. The arrangements offer greater revenue visibility but could limit some upside when spot-market prices accelerate rapidly.

Western Digital experienced a similar problem. Revenue rose 44% from a year earlier to $3.75 billion, while adjusted earnings reached $3.56 a share, exceeding market expectations. The company forecast about $4.1 billion in revenue for the current quarter and adjusted earnings of $3.85 to $4.15 a share.

Yet investors compared Western Digital’s outlook with stronger performance at rival Seagate Technology. Western Digital’s exabyte shipments increased about 22% year on year, below the roughly 25% long-term growth rate investors had been watching. The company is also preparing to introduce drives using heat-assisted magnetic recording, or HAMR, as competition intensifies in high-capacity storage for hyperscale data centres.

The two declines therefore look less like evidence that AI infrastructure demand is collapsing and more like a repricing of exceptionally high expectations. Memory and storage shares have become increasingly sensitive to any indication that pricing, margins or shipment growth could stop accelerating. Other semiconductor names also weakened as investors reassessed how much future AI growth is already reflected in valuations.

Bitcoin’s behaviour adds another dimension. The cryptocurrency was trading around $64,000-$65,000, gaining roughly 1% over 24 hours even as several AI-linked semiconductor shares weakened. That divergence has encouraged arguments that investors may be moving some capital from crowded technology trades towards crypto assets.

The evidence, however, does not yet establish a broad capital rotation. Bitcoin’s move was relatively modest compared with the double-digit losses suffered by Sandisk and Western Digital. Crypto prices also respond to their own drivers, including institutional flows, liquidity expectations, regulation and derivatives positioning. A few sessions of resilience while semiconductor stocks fall are insufficient to demonstrate that money leaving AI shares is systematically entering bitcoin.

What the storage sell-off does demonstrate is a change in the threshold for AI-related stocks. Earnings beats alone are no longer enough when valuations imply continued acceleration. Investors are increasingly scrutinising forward revenue, pricing power, gross margins and competitive positioning rather than rewarding companies simply for reporting strong AI-driven demand.