Western Digital Poised for Margin Expansion Amid Growing Demand for Data Storage Solutions

Morgan Stanley analysts predict significant margin expansion for Western Digital, driven by heightened demand for data-enabling technologies and a shift towards higher-capacity drives. They expect earnings per share to rise 35% above consensus, with current gross margin estimates considered conservative. The favorable forecast is attributed to a less cyclical hard disk drive market, potentially leading to a revaluation of the stock.

Morgan Stanley has released a comprehensive report on the IT hardware industry, particularly focusing on the hard disk drive (HDD) sector. The report suggests that the HDD industry is entering a "Stronger For Longer" cycle, with the peak of the upcycle expected to extend until before 2028 Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1].

The firm has significantly raised its earnings forecasts and target prices for Western Digital (WDC.US) and Seagate Technology (STX.US), maintaining an "Overweight" rating for both. Western Digital is the top pick, with the report predicting a 3%-32% increase in revenue and a 6%-58% increase in EPS for the fiscal years 2026-2028. The target price is set at $171, indicating a 60% upside potential Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1].

The demand for HDDs is driven by both cloud capital expenditure (Capex) and AI. Global spending by the top 11 cloud providers is projected to reach $459 billion in 2025, representing a 61% year-over-year increase, with continued growth of 16% expected in 2026. Morgan Stanley predicts that total global data center spending from 2024 to 2028 will reach $2.9 trillion, with 85% allocated to AI-dedicated data centers Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1].

The report highlights that HDDs are a key component in cloud storage, with 82% of cloud storage capacity supported by HDDs in 2025. The cost advantage of nearline HDDs (NL HDDs) over enterprise SSDs (eSSDs) makes them an attractive choice for cloud providers Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1].

Supply-side constraints are exacerbating the imbalance between supply and demand, driving up HDD prices. Morgan Stanley estimates a supply gap of approximately 150EB in the HDD market over the next 12 months, representing 10% of market demand. This supply gap is expected to persist until 2028 Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1].

The report also notes that Western Digital and Seagate Technology are expected to achieve a compound annual growth rate (CAGR) of over 35% in EPS over the next three years, placing them in the top 25% of the hardware, semiconductor, and networking industries. However, their current P/E ratios are significantly lower than their peers, indicating potential revaluation opportunities Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1].

In summary, Morgan Stanley's report presents a bullish outlook on the HDD industry, driven by strong demand from cloud providers and AI workloads. The firm's positive forecast for Western Digital and Seagate Technology is based on the industry's structural shift towards higher-capacity drives and the reduced cyclicality of the market.

References
Morgan Stanley bullish on hardware: HDD industry entering a 'long-term uptrend' cycle, with the peak extended to 2028; focusing on Western Digital and Seagate Technology.^[1] https://news.futunn.com/en/post/62802860/morgan-stanley-bullish-on-hardware-hdd-industry-entering-a-long