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Investing.com -- Morgan Stanley sharply raised its price targets and earnings forecasts for Western Digital and Seagate Technology, arguing that the hard disk drive (HDD) market has entered a “Stronger for Longer” cycle supported by AI-driven demand and cloud investment.
“We now have even greater conviction that this HDD cycle will be ‘Stronger for Longer,’” the analysts said, citing strengthening cloud infrastructure spending, accelerating data-enabling technologies, and AI inferencing as incremental tailwinds.
The firm lifted its price target on Western Digital to $171 from $99 and on Seagate to $265 from $168, reiterating Overweight ratings on both stocks.
“WDC remains our Top Pick as we believe [its] 25% valuation discount is unwarranted,” Morgan Stanley wrote.
According to the note, HDD demand has “inflected higher” as cloud spend rises and data-rich media creation accelerates.
Supply remains tight, with the market “up to 10% undersupplied,” sparking price hikes and extending visibility into the first half of 2027. The firm now expects the HDD cycle to run until at least 2028.
Morgan Stanley raised long-term earnings estimates, forecasting more than 35% compound EPS growth and 30%+ operating margins for both companies.
“We now model a 21-22% three-year nearline exabyte CAGR vs. 16-17% prior, low-single digit annual price deflation per terabyte, and gross margins exceeding 45% by early 2027,” the analysts said.
The bank also pointed to structural changes in the industry. “HDD stocks are no longer the growth-challenged, highly-cyclical commodities of the last 20+ years. Data is the oil that will keep AI running, and it’s become increasingly clear that HDDs are the oligopoly that will benefit,” Morgan Stanley argued.
The European AI infrastructure market is undergoing a seismic shift, driven by surging demand for cloud computing and AI-specific hardware. According to Return on Europe, investments in European data centers exceeded €8.7 billion in 2024 , with projections indicating total spending will surpass €100 billion by 2030 . This growth is fueled by AI workloads, which are accelerating the need for high-density computing resources and advanced cooling technologies. Against this backdrop, Nvidia
NVDA
+2.81%
and Deutsche Telekom's €1 billion data center partnership in Germany represents a pivotal moment for investors, signaling a strategic alignment with Europe's AI ambitions and regulatory frameworks.