Western Digital, a prominent technology company, has experienced a surge in its stock price following positive predictions from analysts. With the recent strong performance of Nvidia, another leading player in the industry, experts foresee even greater potential for Western Digital. Although Nvidia remains the preferred choice in the compute space, analysts believe Western Digital offers significant upside potential.
The rally in artificial intelligence (AI) stocks has benefited both companies. However, analysts caution that there may be headwinds to consider, particularly with the potential for AI to come off of allocation in the second half of 2024. Despite this, Nvidia has shown promising growth and retains its premier position in the AI supply chain. The company’s key products, such as H200 and B100, are expected to further solidify its market leadership.
Morgan Stanley, a leading financial firm, has increased its price target on Western Digital shares from $52 to $73, highlighting the company’s strong valuation compared to its peers. The upcoming separation of Western Digital’s memory business in the second half of the year is expected to unlock additional value. Analysts emphasize that business is rapidly improving, and there are both positive and negative factors related to the NAND cycle.
NAND flash memory, a type of non-volatile storage technology, plays a crucial role in the industry. Recent developments have shown improvements in the NAND market, with prices increasing by more than 20% quarter-over-quarter in the first quarter. In contrast to memory peers, Western Digital has already guided positive gross margins in the December quarter, indicating a favorable position in the market.
The analysts also predict a gradual recovery for hard disk drives, aligning with consensus views. For the first quarter, revenue, non-GAAP gross margins, and non-GAAP earnings per share are projected at $3.49 billion, 21.4%, and $0.24, respectively. These figures represent an increase compared to previous estimates. Looking ahead to CY’24, the analysts’ numbers show further growth, with revenue, non-GAAP gross margins, and non-GAAP earnings per share expected to reach $16.5 billion, 27.4%, and $4.18, respectively. These projections surpass the consensus estimates.
Beyond the short-term surge, the analysts believe that Western Digital will continue to deliver solid returns in the next three to four years. The sum of the parts math behind the company’s valuation is straightforward and compelling. While the market had previously favored consolidation scenarios, the decision to separate the hard disk drive and memory assets simplifies the story significantly.
Furthermore, Western Digital’s NAND returns have consistently surpassed those of its peers, indicating the strategic value of this asset. This positive trend highlights the potential benefits the company could harness from its NAND business.
In conclusion, Western Digital’s stock price has surged based on optimistic predictions from analysts. The company’s valuation is seen as extremely compelling compared to its peers, and the upcoming separation of its memory business is expected to unlock additional value. Although headwinds related to the potential decline of AI allocation may affect the industry, Western Digital is well-positioned for growth. By prioritizing its NAND business and delivering solid returns, the company aims to maintain its market leadership in the technology sector.
