TLDR
- Morgan Stanley has identified Seagate and Western Digital as premier IT hardware investments, highlighting robust AI and data center expenditures as primary catalysts.
- Over the past year, Western Digital shares surged 489%, supported by a 28% revenue climb and peak gross margins of 46.1%.
- Fiscal Q2 2026 revenue reached $3.02 billion, a 25% year-over-year increase, with hyperscale demand securing the company’s entire 2026 production capacity.
- In February 2026, Western Digital divested a $3.17 billion interest in SanDisk, utilizing the capital to reduce long-term liabilities.
- The stock has experienced a 16% correction from its 52-week peak, largely attributed to a wider downturn in the technology sector.
Western Digital has emerged as a standout performer in the hardware market over the last twelve months. Between March 2025 and March 2026, the company’s share price appreciated by approximately 489%, climbing from $44 to $259.
This rally was underpinned by significant revenue expansion and improved profitability. Total revenue rose 28% to $10.73 billion, while the net income margin saw a substantial increase from 15% to 35.4%.
Morgan Stanley recently designated Western Digital and Seagate Technology as its top picks within the IT hardware space. The financial institution cited the expansion of cloud data centers and increased investment in AI infrastructure as the core drivers for these selections.
Seagate reported fiscal second-quarter revenue of $2.83 billion and earnings per share of $3.11, both of which exceeded market expectations. Following these results, Cantor Fitzgerald increased its price target for the firm.
Regarding Western Digital, Morgan Stanley highlighted growing conviction in AI-related capital expenditure as a key growth factor. Analysts also noted that investors should remain mindful of potential volatility in memory pricing and recent fluctuations in the stock price.
AI Demand Drives Hardware Growth
The second quarter of fiscal 2026 saw revenue reach $3.02 billion, marking a 25% increase compared to the previous year. This growth was primarily driven by hyperscalers—major cloud service providers—purchasing high-capacity hard disk drives in large volumes.
The company achieved a record non-GAAP gross margin of 46.1% during that period. This performance reflects enhanced operational efficiency following the spin-off of Western Digital’s lower-margin flash storage division.
Additionally, in February 2026, Western Digital authorized a $4 billion share buyback initiative. The company’s $599 million in free cash flow generated during Q1 FY2026 is intended to support this program.
Balance Sheet Changes and Stock Pullback
In February 2026, Western Digital offloaded a stake in SanDisk valued at approximately $3.17 billion. The proceeds were applied to debt reduction, a move that led S&P Global Ratings to upgrade the company’s credit rating to BBB-.
Following these events, both Morgan Stanley and Cantor Fitzgerald raised their respective price targets for Western Digital.
Despite strong underlying fundamentals, Western Digital shares have retreated roughly 16% from their 52-week high. Analysts attribute this decline to a broader sell-off in the tech sector and market uncertainty surrounding the SanDisk divestiture.
It is reported that Western Digital’s hard disk drive production capacity for 2026 is already fully committed to hyperscale clients.
