Shares of hard-drive makers Seagate Technology and Western Digital have come under pressure as concerns mount about growing competition from Toshiba. But Wells Fargo says the selloff has been exaggerated.
Seagate fell 4.9% to $657.41 on Friday, while Western Digital dropped 4.6% to $339.84. The stocks are down 27% and 24% in October, respectively, and both have fallen 14% over their current five-day losing streaks, according to Dow Jones Market Data.
Wells Fargo analysts maintained Overweight ratings for Seagate and Western Digital in a note Friday, even as they slashed their price targets for both stocks. They lowered their Seagate target to $865 from $1,180, and Western Digital to $450 from $730. Those freshly cut targets still represent upsides of 26% and 25% from the stocks' closing prices on Thursday, respectively.
This month's declines for Seagate and Western Digital -- which came after a report indicated Japanese rival Toshiba plans to double its hard-drive production capacity -- have been "well overdone," the analysts said, calling Toshiba's execution "a prove-it story." Toshiba declined to comment to Barron's about the report at the time.
The analysts disputed a Nikkei report suggesting Toshiba could claim 30% of the hard-drive market by fiscal 2027, arguing that even doubling its production capacity would support only a midteens market share at best.
Investors also might have overestimated how much additional supply Toshiba plans to bring to market. Wells Fargo analysts noted that a revised report from Nikkei clarified Toshiba intends to double production capacity from fiscal 2025 levels, not fiscal 2026, as investors initially assumed. The analysts estimate the distinction represents a difference of 70 to 90 million terabytes of storage capacity.
As for the outlook for Seagate and Western Digital, their gross margins are expected to approach 70% by 2028, the analysts said. They cited continued price increases, lower production costs, and tight industry supply as key drivers of profitability.
Wells Fargo expects Western Digital's annual revenue to grow to $29.1 billion in 2028 from $15.8 billion in fiscal 2026, while Seagate's revenue is projected to climb to $28.2 billion from $15.3 billion over the same period.
Both stocks have jumped considerably this year, regardless of their recent drops. Seagate has surged 143% in 2026, while Western Digital has risen 99%. The companies have become two of the largest beneficiaries of the AI boom as they reap the rewards of growing demand for data storage.
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