SanDisk’s Gross Margins Just Topped NVIDIA’s. Wall Street Sold Anyway.

Of everything SanDisk (NASDAQ:SNDK | SNDK Price Prediction) said in its fiscal Q3 report, the real story is a paradox.

They posted an adjusted gross margin of 78.4%, a level that sits above the 75.1% gross margin Wall Street expects NVIDIA (NASDAQ:NVDA) to post when it reports its fiscal Q1. And yet the stock fell roughly 6% after hours. (Both of these numbers are absolutely insane, if that isn’t clear!)

We previewed this earnings report earlier in the day, but the reaction tells the bigger story.

Priced for Perfection in a Memory Supercycle

The headline numbers were strong across the board. Revenue came in at $5.95 billion versus $4.70 billion consensus, adjusted EPS at $23.41 against a $14.50 estimate, and Datacenter revenue grew 645% year over year to $1.5 billion. Q4 guidance was equally heavy, with revenue of $7.75 billion to $8.25 billion versus $6.49 billion consensus and EPS of $30 to $33 against $22.70.

The problem is what the buy side had already priced in. SanDisk closed at $1,096.51 right before earnings, up 362% year to date and over 3,300% over the prior year. When Bernstein’s Mark Newman pressed CEO David Goeckeler on whether NAND price increases were slowing into Q4, Goeckeler declined to guide pricing, called Q3 “extraordinary pricing acceleration,” and acknowledged it pays to be conservative early. That was enough to reignite the peak-memory debate.

The Structural Story Underneath the Sell-Off

The…