Morgan Stanley materially lifts HDD price targets and forecasts

Investing.com -- Morgan Stanley sharply raised its price targets and earnings forecasts for Western Digital and Seagate Technology, arguing that the hard disk drive (HDD) market has entered a “Stronger for Longer” cycle supported by AI-driven demand and cloud investment.

“We now have even greater conviction that this HDD cycle will be ‘Stronger for Longer,’” the analysts said, citing strengthening cloud infrastructure spending, accelerating data-enabling technologies, and AI inferencing as incremental tailwinds.

The firm lifted its price target on Western Digital to $171 from $99 and on Seagate to $265 from $168, reiterating Overweight ratings on both stocks.

“WDC remains our Top Pick as we believe [its] 25% valuation discount is unwarranted,” Morgan Stanley wrote.

According to the note, HDD demand has “inflected higher” as cloud spend rises and data-rich media creation accelerates.

Supply remains tight, with the market “up to 10% undersupplied,” sparking price hikes and extending visibility into the first half of 2027. The firm now expects the HDD cycle to run until at least 2028.

Morgan Stanley raised long-term earnings estimates, forecasting more than 35% compound EPS growth and 30%+ operating margins for both companies.

“We now model a 21-22% three-year nearline exabyte CAGR vs. 16-17% prior, low-single digit annual price deflation per terabyte, and gross margins exceeding 45% by early 2027,” the analysts said.

The bank also pointed to structural changes in the industry. “HDD stocks are no longer the growth-challenged, highly-cyclical commodities of the last 20+ years. Data is the oil that will keep AI running, and it’s become increasingly clear that HDDs are the oligopoly that will benefit,” Morgan Stanley argued.

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