Investing.com -- Morgan Stanley raised price targets sharply on Seagate Technology and Western Digital in a note to clients on Monday, citing Asia-based checks that show the hard disk drive cycle elongating with shortages now expected through at least 2028.

Analyst Erik Woodring raised Seagate's price target to $1,035 from $767 and Western Digital's to $650 from $488, maintaining Overweight ratings on both, with Seagate remaining the firm's "Top Pick."

Woodring told investors that checks over the last three weeks "highlight strengthening (and broadening) HDD demand and the potential for material pricing upside."

"Our Asia checks from the last 3 weeks make clear the HDD cycle is elongating – with greater shortages now expected through at least CY28 – while also illustrating that HDD pricing is clearly, and meaningfully, strengthening," he added.

The firm estimates HDD demand is growing 40% to 50% annually while supply growth runs closer to 30% to 35%, a gap Morgan Stanley said is driving shortages "through at least CY28."

Current nearline pricing is said to sit below $15 per terabyte, but Morgan Stanley's Taiwan checks indicate vendors are targeting $25-30 per terabyte over the next two to three years.

Even with base case forecasts more conservative than its checks, Woodring stated that fiscal 2028 EPS estimates for both companies are now roughly 70% above Street consensus.

Under the most bullish pricing scenario, the firm believes "both STX and WDC could 10x EPS between CY25 and CY28."

Morgan Stanley attributed the demand strength to two factors gathered during its Asia trip, including core cloud services outperformance combined with growing inferencing and agent-related demand, and stronger demand alongside higher-capacity drive introductions and "parabolic NAND price hikes" giving vendors conviction to raise prices in a more controlled manner than memory peers.

The firm called HDDs "our still-most-preferred area of AI exposure" within IT hardware, with valuations at 11-18x base/bull case 2027 EPS estimates remaining "undemanding."