Storage shares continue to rally on Tuesday. Western Digital surged over 8%; Seagate Tech rose nearly 5%; SanDisk, DRAM, Micron up around 1%.
Western Digital’s stock was the biggest gainer in the S&P 500 on Monday, up 16%, and Seagate Technology shares rose 9%, the index’s fourth-best gainer.
That was after Morgan Stanley analyst Erik Woodring raised his price target on Seagate’s stock to $1,035 from $767 and lifted his target on Western Digital’s stock to $650 from $488, saying that there is a growing shortage of hard disk drives, which is set to drive up prices in the coming years.
While PCs don’t need hard disk drives like they used to, data centers do, and for that reason, HDDs are only growing in demand.
Woodring explained that HDD demand is strengthening due to the growing demands from cloud-computing services and also a newer source — AI inferencing.
He also noted that rising prices for NAND flash memory have helped hard-drive makers, as HDD emerges as an alternative. That’s created an opportunity for Seagate and Western Digital to raise prices in a more “controlled” and “predictable” way compared to their memory peers.
Woodring said that he believes HDD demand is growing between 40% to 50% annually, while supply is growing closer to 30% to 35%. Based on his conversations in Asia, he expects shortages to continue over the next two to three years.
Woodring’s top pick is Seagate, as he believes the company has a greater opportunity for margin expansion over the next three to six months. But he’s “pounding the table” for both Seagate and Western Digital, he wrote in his latest note, reiterating overweight ratings on each.
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