Morgan Stanley expects hard-drive makers Seagate Technology and Western Digital to report strong quarterly results and provide better-than-expected guidance, despite recent pressure on their shares from concerns over artificial intelligence financing and rising competition.
Analyst Erik Woodring raised Morgan Stanley’s price target on Seagate to $1,200 from $1,187, while lowering its target on Western Digital to $643 from $676.
The firm maintained Overweight ratings on both stocks and named Seagate its top pick in the information technology hardware industry.
Based on Monday’s closing prices, the revised targets imply potential upside of approximately 82% for Seagate and 83% for Western Digital.
Both stocks were up in trading on Tuesday. Western Digital WDC gained 1.31% to $356.82, while Seagate STX dropped 1.32% to $669.54.
Morgan Stanley sees buying opportunity after stock selloff
The two companies came under heavy selling pressure last week as concerns about the sustainability of AI-related investments weighed on technology stocks.
Seagate shares fell more than 18%, while Western Digital lost over 16%.
Competition has also become a concern following reports that Japanese rival Toshiba plans to double its hard-drive production capacity.
Despite these pressures, Morgan Stanley sees the recent declines as an opportunity for investors, arguing that the market may be underestimating the strength of the current hard-drive industry cycle.
Woodring said in a research note that the firm sees favourable near-term trading setups for both companies, particularly Western Digital.
His revised price targets reflect lower valuation multiples amid concerns about competition and AI financing, rather than weaker expectations for earnings.
AI demand supports hard-drive pricing and earnings outlook
Morgan Stanley’s bullish outlook is based on strengthening hard-disk drive (HDD) fundamentals, including rising demand, a broader customer base and accelerating prices.
Woodring said the hard-drive market is showing similarities to the memory market a year ago, before surging demand from AI infrastructure investments drove substantial gains in memory stocks such as Micron Technology and SanDisk.
The firm said recent industry checks point to a potential supply shortfall of around 400 exabytes in 2027 and 2028.
It also highlighted spot hard-drive transactions at prices two to five times higher than contracted levels, suggesting potential support for margins and earnings.
Morgan Stanley expects both manufacturers to exceed September-quarter expectations and deliver 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.
Earnings reports could test the bullish outlook
Western Digital is scheduled to report earnings after the market closes on Thursday, while Seagate is due to release its results on October 27.
The reports will give investors an opportunity to assess whether demand for storage products, pricing trends and customer spending support Morgan Stanley’s expectations.
However, concerns about competition and the financing of AI infrastructure remain risks for the sector.
Toshiba’s planned capacity expansion could intensify competition, while uncertainty around AI investment could affect demand expectations.
The upcoming results and forward guidance could therefore prove important in determining whether the recent share-price declines represent a buying opportunity or reflect risks to the hard-drive industry’s growth outlook.
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