Bullish on AI-driven storage demand continues to grow Wells Fargo & Company raises target price for Seagate Technology Holdings PLC (STX.US) and Western Digital Corporation (WDC.US)

Wells Fargo & Company has released a research report, upgrading Seagate Technology Holdings PLC (STX.US) from "hold" to "buy" with a target price raised from $900 to $1100; at the same time, they maintain a "buy" rating for Western Digital Corporation (WDC.US) and raise the target price from $575 to $730. The team led by Wells Fargo & Company analyst Aaron Rakers stated that they expect the upcoming fourth quarter financial results for Seagate and Western Digital Corporation in the 2026 fiscal year to further solidify market confidence in the industry's long-term growth logic and continue to boost the valuation of both companies. Analysts expect that both companies will reiterate in their earnings reports that the capacity growth of nearline hard disks is expected to continue to exceed 25% in the long term, driven by AI data center demand. If the industry continues to maintain production discipline, future growth rates are expected to increase to over 30%. At the same time, analysts expect that the blended average selling prices of both companies will continue to grow in the mid to high single digits, with price increases from 2027 to 2028 expected to expand to low to mid-double digit levels. In terms of gross margin, it is expected to continue to increase to over 65%, with some optimistic views even suggesting that it may surpass 70%. Furthermore, Wells Fargo & Company believes that the earnings visibility for both companies in the coming years will continue to extend, and free cash flow will remain strong, providing ample support for capital returns. Analysts point out that with the continuous expansion of artificial intelligence infrastructure, cloud computing service providers still have a strong demand for large capacity storage. They expect Seagate and Western Digital Corporation to further emphasize in their earnings reports the continued improvement in demand visibility and are expected to confirm that demand for EB-level storage will further accelerate in 2027 to 2028. The report also mentioned that the procurement agreements that both companies have with major global cloud service providers remain firm. These agreements are primarily based on procurement scale and prices are usually determined 6 to 9 months before product delivery. Currently, the companies' cooperative plans with customers have extended to 2030, nearline hard disk capacity has been allocated to 2027, and planning for demand in 2028 has begun. On the other hand, South Korean storage chip giant SK Hynix (SKHYV.US) officially debuted on the Nasdaq on Friday, raising $26.5 billion, setting a record for the largest IPO by a foreign company in the US capital market.