Western Digital and Seagate Remain Buys Even as Stocks on Remarkable Runs, Citi Says

Citi lifts its price targets on Western Digital, Seagate Technology, and Sandisk. (AFP via Getty Images)

Key Points

• Wall Street analysts are increasing outlooks for data-storage companies due to rising demand from cloud computing and artificial intelligence.
• Citi reiterates Buy ratings on Western Digital, Seagate, and Sandisk, raising price targets to $135, $250, and $150, respectively.
• The shift to AI inferencing, data-center development, and increased data requirements are expected to drive long-term growth for storage.

Wall Street continues to boost its outlook for data-storage companies like Western Digital and Seagate Technology Holdings amid a surge in demand for cloud computing and artificial intelligence.

Citi reiterated Buy ratings for both stocks, as well as competitor Sandisk , in a research note Monday. The firm lifted its price target for Western Digital to $135 from $110; for Seagate to $250 from $215; and for Sandisk to $150 from $125.

Western Digital stock was up 4.9% to $121.04 in premarket trading Monday, while Seagate climbed 4.9% to $224.79. Sandisk rose 6.1% to $124.

The data-storage category has been on a remarkable run. Western Digital was the second-best stock in the S&P 500 in the third quarter, rising 88%. Seagate wasn’t far behind in fourth, jumping 64%. Sandisk, which is not in the index, rose nearly 150% in the quarter. A pullback last week didn’t dent analysts’ confidence.

Citi closed its 90-day upside views—meant to predict significant short-term gains—for all three storage players. But new trends in AI mean the companies’ recent runs are unlikely to stall out, the firm said.

More AI workloads are transitioning from training to inferencing, which is the process using AI models to answer questions and solve problems. This shift, along with next-generation data-center development, rapid AI model iterations, and greater data requirements, should be a long-term tailwind for storage companies, Citi argued.

The firm’s Asiya Merchant sees “improving industry conditions contributing to profitability, with guidance for continued data center storage market growth.”

Shortages of hard disk drives, a key sales line for Western Digital and Seagate in particular, are “expected to further drive a healthier supply/demand environment,” Merchant added.

Analysts have continually updated their estimates for storage stocks over the last several weeks due to hard disk drive demand. Morgan Stanley lifted its price targets for Western Digital and Seagate late last month and reiterated Overweight ratings for both.

Write to Nate Wolf at nate.wolf@barrons.com