Bernstein Upgrades Western Digital to Outperform, Sending Stock Up 11%

TLDR

• Bernstein raised its rating on Western Digital to Outperform from Market Perform and doubled its price target to $340.
• A recent 21% decline in the stock was fueled by concerns about Google’s TurboQuant compression algorithm, which Bernstein asserts does not affect hard disk drive demand.
• Bernstein now projects the combined revenue of Western Digital and Seagate will increase at a 24% compound annual growth rate from fiscal 2025 through 2030.
• Western Digital’s ePMR technology roadmap was prolonged by one to two years, although this could indicate a slower transition to its HAMR technology.
• Seagate continues to be Bernstein’s preferred stock in the sector, with its price target increased to $620.

(SeaPRwire) –   Western Digital’s performance for the year is now approximately 57%, even following the recent downturn that alarmed investors.

Western Digital Corporation, WDC

The selling pressure started after Google Research introduced TurboQuant last week—a compression algorithm aimed at the KV cache utilized in AI inference. Investors were concerned it would reduce demand for storage products.

Bernstein analyst Mark Newman strongly contested that perspective. “There is zero impact to HDD demand,” Newman stated. He also noted that TurboQuant’s influence on NAND flash memory, which is only used to offload cold caches, is minimal.

Bernstein contended that the market’s response was excessive. Before the upgrade, Western Digital’s stock had dropped 21% from its recent peaks. Competitors Seagate and Sandisk were also affected by the decline.

A More Optimistic Outlook for Storage

Bernstein has adopted a more positive stance on the storage sector in general. The firm anticipates that the combined revenue for Western Digital and Seagate will expand at a 24% compound annual rate from fiscal 2025 to 2030.

This represents a significant increase from prior expectations of 18.7% growth in bits and a 3.6% annual price drop. The updated forecast is based on 24% bits growth alongside stable pricing.

Newman identified AI workloads, more data-intensive content creation, extended data retention periods, and stricter data sovereignty regulations as factors driving both demand and average selling prices higher.

Regarding products, Western Digital’s 2026 Innovation Day featured an extended roadmap for its ePMR technology. The company has effectively extended the timeline for its legacy drive technology by one to two years beyond previous expectations.

HAMR Transition Pace in Question

A qualification is embedded within the upgrade. Newman interpreted the ongoing emphasis on ePMR as an indirect indication that Western Digital’s shift to heat-assisted magnetic recording (HAMR) might be progressing more slowly than initially scheduled.

Bernstein’s model projects that Western Digital will start increasing production of HAMR in 2027, with the technology accounting for about 5% of nearline exabytes shipped that year.

This contrasts sharply with Seagate, which Bernstein forecasts will have roughly 70% of its nearline shipments using HAMR by the same year. Seagate is still the firm’s top choice, and its price target has been lifted to $620 from $500.

Following the upgrade announcement on Wednesday, Western Digital’s shares increased by approximately 2.3% in premarket trading and continued to climb during the regular session.