"Boring" stock with big potential: Morgan Stanley doubles down on Western Digital targeting

The securities of the American Western Digital (WD), a manufacturer of traditional data storage devices, have recently turned from the so-called "boring stocks" - stable and predictable - into one of the main beneficiaries of the artificial intelligence boom. The company's shares have risen one-and-a-half times in a month, and Wall Street analysts' estimates have not kept pace with the growth. Investment bank Morgan Stanley doubled its target price: the oligopoly in the industry and the need for data storage for neural networks give WD the opportunity to rapidly increase profits for at least two to three more years.

Just weeks after Morgan Stanley named Western Digital its favorite ("top pick"), the investment bank reaffirmed its "Overweight" rating on the company's stock and nearly doubled its target price from $99 to $171. This target is the highest on Wall Street, Barron's reports, citing FactSet data.

According to analysts of the investment bank, the current value of WD shares does not yet fully reflect the growth in demand for the company's key products. As noted in Morgan Stanley, demand for hard disk drives (HDD) has been increasing since 2024 due to investments in cloud infrastructure and artificial intelligence. This growth cycle is unlikely to peak before 2028, analysts said.

Between 2025 and 2028, Morgan Stanley forecasts average annual earnings per share (EPS) growth of 37% for Western Digital. That's higher than 75% of cloud hardware, semiconductor and networking vendors, Barron's notes.

"Data is the oil on which artificial intelligence will run. And it is becoming increasingly clear that the HDD market is an oligopoly that will capitalize on the need to store the massive amounts of data required for AI," Morgan Stanley analyst Eric Woodring wrote.

Kevin Cassidy of Rosenblatt Securities, for similar reasons , reiterated a buy recommendation on WD shares on September 29 and raised his target price from $90 to $125. The growth in data center construction allows Rosenblatt to expect demand for HDDs to outstrip supply until at least 2027.

According to FactSet, the picture on WD looks bullish: 21 analysts recommend the hard disk drive maker's shares to buy with Buy and Overweight ratings, only five hold a neutral position (Hold), and only two are moderately negative (Underweight). At the same time, the average target price of $100.77 per share is already lagging behind the market: just last month WD shares jumped 45% in price and are trading 16% above the consensus target.

Morgan Stanley maintained an "outperform" rating for WD's main competitor Seagate Technology and raised its target price for the stock from $168 to $265. Rosenblatt Securities reiterated a "buy" recommendation and raised its target from $200 to $250 per share.

"Do we recommend increasing positions rated 'above market' at current valuations?" asks Morgan Stanley's Woodring. - The short answer is yes, and we would act even more aggressively if we saw an unwarranted drawdown in any of these securities."

This article was AI-translated and verified by a human editor