Western Digital receives Overweight rating as Morgan Stanley assumes coverage
Apr. 16, 2025 10:16 AM ET
Western Digital (NASDAQ: WDC) received an Overweight rating by Morgan Stanley as the investment firm assumes coverage of the stock.
Morgan Stanley also set a $46 price target.
"Investor sentiment on HDDs leans negative, WDC short interest is at a 12 month high, and WDC's tax-free spin of Sandisk (NASDAQ: SNDK) came at a challenging time – the market is down 10% since the spin, and WDC has underperformed by 20 points," said Morgan Stanley analysts, led by Erik Woodring, in a Wednesday investor note. "Yet, this is historically when you want to get involved in a cyclical hardware stock – when expectations are low and valuation has positive asymmetry."
Western Digital completed the spinoff of its flash business segment Sandisk in February. Western Digital now focuses on the hard disk drive business.
"Not to mention, we take a fundamentally more positive view than the market on the sustainability of HDD demand, which has been called into question with the recent tariff policy volatility; understand why WDC's valuation discount vs. peer Seagate Technology ( STX) exists today, but believe that consistent execution will help close the valuation gap over the next 12 months; and believe that de-levering the balance sheet and initiating a dividend over the next 6–12 months will be accretive to equity holders."
However, Morgan Stanley noted that tariff uncertainty creates a potential downside risk to the HDD cycle. Currently, HDDs are unburdened by import tariffs, but that could change.
Still, cloud service providers such as Microsoft ( MSFT) and Amazon ( AMZN) expect strong HDD procurement plans.
"Cloud computing remained a top 3 CIO priority in our 1Q25 CIO survey, even as CIOs noted caution in hardware spending," Woodring added. "And interestingly, while our latest cloud capex tracker currently points to overall capex decelerating to 31% Y/Y growth in CY25, when excluding estimated spend on GPU/ASIC's, non-AI cloud capex is expected to accelerate in 2025, to +27% Y/Y growth."
Western Digital is slated to release its third quarter fiscal 2025 financial results pre-market on April 30. A consensus estimate expects adjusted earnings per share of $1.12 on revenue of $2.61B.
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