Seagate Technology (STX) and Western Digital (WDC) are expected to benefit from strengthening demand for hard disk drives, Morgan Stanley said in a note Monday.
The report said checks in Asia from the last three weeks made clear the HDD cycle is elongating, with greater shortages now expected through at least 2028 while also illustrating that HDD pricing is clearly, and meaningfully, strengthening.
The note also said HDD demand is rising 40% to 50% a year, while supply growth is closer to 30% to 35%.
"We believe that the market continues to underestimate the longevity of this HDD cycle, as well as the potential earnings power of both STX and WDC," the report said.
The note said its base case 2028 EPS estimates for the two companies are now 70% above consensus.
Morgan Stanley raised its price target for Seagate to $1,035 from $767, and for Western Digital to $650 from $488. It kept Seagate as its top pick on greater margin expansion prospect.
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