Morgan Stanley has reiterated its bullish stance on hard-drive manufacturers Seagate Technology and Western Digital, predicting robust quarterly results and upbeat guidance despite recent share price declines driven by AI financing worries and competitive pressures.
Analyst Erik Woodring increased the price target for Seagate to $1,200 from $1,187, while trimming the target for Western Digital to $643 from $676. The firm maintains Overweight ratings on both stocks and has designated Seagate as its top pick in the IT hardware sector. Based on Monday's closing prices, these revised targets imply potential gains of approximately 82% for Seagate and 83% for Western Digital.
In Tuesday's trading, Western Digital advanced 1.31% to $356.82, while Seagate slipped 1.32% to $669.54. The stocks had suffered heavy losses last week, with Seagate falling over 18% and Western Digital dropping more than 16%, amid concerns about the sustainability of AI-related capital expenditures and reports that Japanese rival Toshiba plans to double its hard-drive production capacity.
Morgan Stanley views the recent selloff as a buying opportunity, arguing that the market may be underestimating the strength of the current hard-drive industry cycle. Woodring noted in a research report that the firm sees favorable near-term trading setups for both companies, particularly Western Digital. The revised price targets reflect lower valuation multiples due to competition and AI financing concerns, rather than weaker earnings expectations.
The bullish outlook is underpinned by strengthening hard-disk drive (HDD) fundamentals, including rising demand, a broader customer base, and accelerating prices. Woodring drew parallels to the memory market a year ago, before AI infrastructure investments drove substantial gains in stocks like Micron Technology and SanDisk. Industry checks suggest a potential supply shortfall of around 400 exabytes in 2027 and 2028, and spot hard-drive transactions are occurring at prices two to five times higher than contracted levels, which could support margins and earnings.
Morgan Stanley expects both manufacturers to exceed September-quarter expectations and provide stronger-than-anticipated guidance for the December quarter. Its earnings forecasts are approximately 12% above consensus for Seagate and 10% higher for Western Digital. The analyst also argued that current valuations reflect an overly pessimistic view of how the hard-drive cycle could end, while pricing momentum and margins have room to strengthen further.
Western Digital is scheduled to report earnings after the market closes on Thursday, while Seagate is due to release its results on October 27. These reports will offer investors a chance to assess whether demand for storage products, pricing trends, and customer spending align with Morgan Stanley's projections. However, risks remain, including Toshiba's capacity expansion and uncertainty around AI investment, which could affect demand expectations. The upcoming results and guidance will be crucial in determining whether the recent share-price declines represent a buying opportunity or signal risks to the hard-drive industry's growth outlook.
This article is for informational purposes only and does not constitute financial advice.
