Morgan Stanley considers Western Digital and Seagate Technology their top picks because the AI boom has created massive, long-term supply shortages for hard disk drives (HDDs). This structural deficit gives these manufacturers unprecedented pricing power, allowing them to rapidly boost revenue, margins, and stock buybacks.
Morgan Stanley analyst Erik Woodring reiterated Overweight ratings on both companies due to the following structural shifts in the HDD market:
1. Massive Pricing Power and Profit Margins
- Current Prices: Western Digital and Seagate currently price their hard drives at roughly $14.30 to $14.90 per terabyte.
- Future Targets: Morgan Stanley projects these figures to hit $25 to $30 per terabyte by 2027 and 2028.
- No More Discounts: Because demand is significantly outstripping supply, the companies have stopped offering discounting incentives to customers.
2. Artificial Intelligence Data Demand
- AI models constantly ingest, process, and generate unprecedented volumes of data.
- Hard disk drives offer the absolute lowest cost-per-terabyte for storing the vast data oceans required to train these AI models.
- Morgan Stanley estimates AI-fueled growth will drive HDD demand up by 40% to 50% annually, leading to supply falling short of demand by 10% to 15%.
3. Favorable Price Target Upgrades
Analysts continuously raised their targets on both stocks to reflect this sustained momentum, with Morgan Stanley framing these dynamics as a significant re-rating story:
- Western Digital: Price target raised from $488 to $650.
- Seagate: Price target raised to $1,035.
- Under a bull-case scenario (with increased pricing and extreme demand), Morgan Stanley predicts upside targets could push even higher for both names.
If you want, I can:
- Analyze the financial data and projected revenue of the sector in greater detail.
- Compare Western Digital’s UltraSMR and HAMR technology roadmaps.
- Break down how storage stocks compare to other AI hardware plays.
