Western Digital Stock Is Attractive, Backed By Cheap Valuation And AI Surge: Analyst

Benchmark analyst Mark Miller upgraded Western Digital Corp WDC from Hold to Buy with a $55 price target Thursday.

Investor’s concern over tariffs has produced compelling valuations for some tech hardware stocks.

In Benchmark’s 26 years of coverage, the forward valuations of hard drive stocks have typically ranged from mid-single digits to teen multiples.

Also Read: Western Digital Faces ‘Challenging Pricing Environment,’ But There’s Long-Term Potential: Analysts

Western Digital stock is trading at the low end of this historic range. Miller deemed the stock attractive, backed by its valuation, expected double-digit growth in data center spending by the major hyperscalers, the AI opportunity, and lower expected interest expense.

In a recent survey, nearly two-thirds of respondents from companies that use cloud as their leading storage medium expect their cloud-based storage to grow by more than 100% over the next three years.

Alphabet Inc. GOOG GOOGL, Amazon.Com Inc. AMZN, Meta Platforms Inc. META, and Microsoft Corp META will likely increase their combined capital expenditure by 40%, from roughly $230 billion in 2024 to $322 billion in 2025.

According to estimates, close to 89% of data stored by leading cloud service providers is stored on hard drives. Last quarter, Western Digital reported a record Nearline Exabytes (EB) shipment and Data Center sale.

Strong data center spending should continue to aid Western Digital’s stock. Driven by AI, the size of the Global Datasphere will likely rise to 175 zettabytes this year.

Western Digital has several AI opportunities. Due to the lower storage cost on hard drives, a nearline storage HDD has a unit price per GB of $0.013, while large capacity SSDs for servers have a unit price per GB of $0.123, nearly 9.5 times higher than HDDs. SSDs are attractive for both AI learning and generative applications.

AI users believe the adoption of trustworthy AI requires an increased need to store more data for extended periods, which also favors hard drives over flash.

Miller noted that the ramp-up of PCs with AI chips in the second half of 2025 will drive a refresh cycle for PCs.

As a result of Sandisk Corp’s SNDK spin-out, Western Digital holds about 24 million SanDisk stock. Miller noted that Western Digital will divest these shares and use the proceeds to pay down debt, saving an estimated $0.15 to $0.20 per diluted share in annual interest expense.

For Western Digital, Miller projected third-quarter revenue of $2.70 billion and EPS of $1.32 (prior $1.12).

Price Action: Western Digital stock closed lower by 3.94% to $34.87 on Thursday.

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