Western Digital stock surges as Morgan Stanley lifts target to $650

Western Digital WDC shares surged on Monday after Morgan Stanley raised its price target on the data-storage company and reiterated its bullish outlook on both Western Digital and Seagate Technology, citing strengthening demand for hard disk drives fueled by artificial intelligence.

Western Digital stock jumped about 17% to $658.80, making it the top performer in the S&P 500.

The shares have gained more than 1,000% over the past year.

Seagate Technology also advanced 7.6% to $1,002.44 and has climbed more than 660% during the same period.

Morgan Stanley analyst Erik Woodring reiterated Overweight ratings on both companies, describing them as his "most-favored Overweights."

The firm increased its price target on Western Digital to $650 from $488 and raised its target on Seagate to $1,035 from $767.

AI demand strengthens storage outlook

According to Morgan Stanley, growing demand for data storage driven by artificial intelligence is creating favorable industry conditions that appear more durable than previous hardware cycles.

"We continue to believe [hard disk drives] represent the cleanest estimate revision and re-rating story within our IT Hardware coverage," Woodring wrote.

The firm estimates that hard disk drive, or HDD, supply will fall short of demand by 10% to 15% in 2026.

Demand is currently growing at roughly 40% to 50% annually as AI models consume and generate increasing amounts of data, while HDD supply growth is estimated at 30% to 35%.

Morgan Stanley argued that this imbalance could support continued pricing gains and revenue growth across the sector.

Earlier this year, Western Digital Chief Financial Officer Kris Sennesael told Barron's that the industry has become less cyclical, noting that customers are increasingly seeking to secure supply several years in advance.

The brokerage also highlighted signs of tightening inventory levels.

Following meetings with Western Digital executives, analysts noted that original design manufacturers currently hold only one to two weeks of HDD inventory.

"Demand is strengthening with ODMs [Original Design Manufacturers] currently running with only 1-2 weeks of HDD inventory, implying limited 'inventory glut' risk," the analysts said.

Pricing power and technology roadmap support growth

Morgan Stanley expects stronger demand to continue supporting pricing improvements.

Western Digital and Seagate currently sell HDDs for approximately $14.30 to $14.90 per terabyte.

According to the firm, both companies are targeting pricing of $25 to $30 per terabyte in 2027 and 2028.

Separately, J.P. Morgan analyst Samik Chatterjee noted that Seagate has stopped offering discounts to encourage adoption of next-generation products, reflecting ongoing supply constraints.

Morgan Stanley also highlighted Western Digital's dual-track UltraSMR and HAMR technology roadmap as an underappreciated advantage.

"Our mgmt meetings reaffirm that: (1) HDD demand is strengthening with customers seeking visibility into 2032; (2) WDC price/TB is biased upwards; (3) WDC's UltraSMR/HAMR products are on-track for C2H26/C1H27 launch; and (4) capital returns are accelerating. PT to $650, Bull Case to $920," the analysts wrote.

The firm said HAMR qualifications with four hyperscale customers remain on track for a first-half 2027 launch.

Capital returns and bull-case upside

Following meetings with Chief Executive Officer Irving Tan, Chief Financial Officer Kris Sennesael, and Vice President of Investor Relations Ambrish Srivastava, Morgan Stanley said it has increased confidence in Western Digital's outlook.

The analysts expect the company to benefit from more than 30% year-over-year growth in nearline exabytes, accelerating pricing gains, expanding gross margins, and stronger operating leverage.

Management also suggested that exabyte supply growth could compound at 30% to 35% annually over the next three to five years, with a 40% compound annual growth rate potentially achievable without adding manufacturing capacity.

Morgan Stanley believes investors continue to underestimate the potential upside from rising HDD demand, stronger pricing, and accelerating shareholder returns.

The firm's bull-case scenarios value Western Digital at $920 per share and Seagate at $1,446 per share.

"The drivers of HDD demand are broadening, visibility is elongating, pricing is strengthening, and our new bull cases are coming closer into play," Woodring wrote.