MW This 'overlooked' AI stock is a new top pick at Morgan Stanley
By Britney Nguyen
Morgan Stanley says investors still aren't giving Seagate's stock enough respect, despite its massive recent gains
A Morgan Stanley analyst named Seagate's stock his new "top pick" on Monday.
On the face of things, a stock that is up nearly 600% in the year may not appear overlooked. But Seagate Technology's stock gains have trailed those of rival Western Digital, and a Morgan Stanley analyst thinks investors aren't giving Seagate enough respect.
Both companies make hard-disk drives, which are seeing booming demand and higher prices in the artificial-intelligence era.
While memory and storage stocks have surged thanks to those trends, Morgan Stanley's Erik Woodring thinks investors are still underappreciating "the fundamental strength" that the market backdrop offers Seagate $(STX)$ and Western Digital $(WDC)$.
"Simply put, HDDs are perhaps the investments most-levered to data center spending amongst the 'AI picks and shovels,'" he said, adding that the drives "remain a critical component bottleneck" for cloud-service providers.
And Seagate is now Woodring's preferred way to play the trend. He elevated Seagate's stock to "top-pick" status, replacing Western Digital.
He argued that some "key catalysts" for Western Digital - including using its Sandisk stake $(SNDK)$ to reduce its debt - came in the last quarter. Seagate's stock also trades at a discount to Western Digital's, he said, and the company is expected to expand its gross margins faster than Western Digital over the next 12 months, thanks to its more robust offerings.
Seagate's stock was up about 6% on Monday, while Western Digital's was up about 3.6%.
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Woodring is still "extremely bullish on" Western Digital, he added. He sees signs that HDD output, though improving, "has been met with even stronger hyperscaler demand in recent months."
He pointed to an increase in the amount of workloads being moved to the cloud and to growing adoption of AI among consumers and enterprises. Woodring noted that HDDs are responsible for storing about 80% of cloud data in the world.
At the same time, HDD makers "remain committed to not adding any new greenfield capacity," Woodring said, referring to building new facilities for manufacturing HDDs. And he doesn't expect supply and demand for HDDs to reach parity until 2029, which is 12 months beyond his original estimate.
Given the importance of HDD, the strength in demand for that product and the fact that HDD makers are not adding capacity, the supply and demand imbalance will continue to make for an "extremely favorable" environment for pricing, Woodring said, and "HDD vendors appear increasingly willing to extract this pricing power."
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Woodring also made a distinction between HDDs and other types of memory that are seeing similar momentum from AI.
For one, the HDD market is only made up of three players, and two of them control 90% of the market, he said. And while memory companies produce offerings for a diversified customer base, Woodring noted that data centers make up more than 80% of the revenue opportunity for HDD makers. Gross margins for HDD sellers are also not as high as those for memory makers, he said, and are therefore not peaking.
Additionally, HDD makers face less of an oversupply risk than memory companies, which are now slowly adding capacity to address shortages after having been reluctant to do so, Woodring noted.
-Britney Nguyen
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April 06, 2026 14:21 ET (18:21 GMT)
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