Western Digital jumped 10% while Seagate Technology climbed 7% on Monday as they both received significant price target hikes and reiterated Overweight ratings by Morgan Stanley due to a strengthening hard disk drive cycle.
"While we've been hard disk drive bulls for the better part of two years, HDD demand has recently inflected — the result of strengthening cloud infrastructure spending ($3T through 2028), accelerating investments in data-enabling technologies, and AI inferencing — both agentic and multi-modal — emerging as an incremental tailwind to data-rich media generation and data retention needs," said Morgan Stanley analysts, led by Erik Woodring, in an extensive investor note.
Morgan Stanley increased its price target on Western Digital to $171 from $99 and boosted Seagate's target to $265 from $168. Western Digital also remains a "Top Pick" for the investment firm.
"On the back of an elongated HDD cycle, we are now modeling: (1) a 21-22% 3 year nearline EB CAGR vs. 16-17% prior, (2) low-single digit annual price deflation per terabyte, and (3) gross margins exceeding 45% by early 2027, driven by our bottom-up capacity, pricing, and mix build analysis, resulting in >35% EPS growth through FY28," Woodring added. "For reference, this would place WDC and STX in the 1st or 2nd quartile for growth and margins vs. industry-leading, cloud-exposed hardware, semis, and networking comps, and result in $21 of earnings power for STX and ~$13 of earnings power for WDC in FY28, 30-60% higher than our prior forecasts and 40-70% above Street expectations."
Morgan Stanley contends that "data is the oil that will keep AI running," and HDDs are a clear benificiary.
"With stronger long-term growth and structurally higher margins, we expect WDC/STX to continue re-rating above historical valuations — a key point we believe the market is missing given the historical cyclicality associated with HDD's," Woodring added.
Rosenblatt Securities also increased its price targets, raising Western Digital to $125 from $90 and Seagate to $250 from $200, while maintaining its Buy rating on both stocks.