Western Digital Refocuses Post-SanDisk Spin-Off As Analyst Highlights AI-Led HDD Growth

Rosenblatt analyst Kevin Cassidy relaunched coverage on Western Digital WDC, giving the stock a Buy and lowering the price target from $76 to $50 on Tuesday.

Cassidy noted Western Digital’s spin-off of SanDisk, and the price target reflects 10 times the analyst’s adjusted EPS estimate for the next 12 months.

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

The analyst used a 10 times earnings valuation based on expected profitable growth as the HDD market continues to be in a strong up cycle. This is a ~10% discount to its peer, Seagate Technology Holdings PLC STX, given Cassidy’s view that Seagate has a technology lead in HAMR technology.

The analyst highlighted key points from investor day.

HDDs remain the dominant storage media, expected to account for over 80% of cloud storage, with exabyte shipments growing at a 23% CAGR from 2024 to 2028. AI-driven storage demand is accelerating, with AI workloads projected to contribute 8% growth to the HDD market by 2028.

Nearline HDD is forecasted at 6% CAGR without AI, but AI-driven demand could push growth to 14% CAGR over the same period.

The Nearline HDD TAM will likely grow from $13.3 billion in calendar 2024 to $22.6 billion by calendar 2028, with AI alone contributing $5.5 billion.

Western Digital has shifted its focus to the cloud, which is projected to contribute 88% of revenue by fiscal 2025.

Nearline HDDs are the primary revenue driver, with continued growth expected in enterprise and data center markets. The remaining 12% of the business comes from consumer storage, including video surveillance, network-attached storage (NAS) and compute storage solutions. HDDs maintain a six times cost advantage over enterprise SSDs and are expected to retain this cost leadership through at least fiscal 2030.

Western Digital expects fiscal 2025 revenue to be approximately $2.2 billion to $2.3 billion for HDDs, with sequential gross margin expansion of 50 basis points. The HDD business targets mid-to-high single-digit revenue growth, aligned with industry trends.

The SanDisk separation is expected to unlock value, with $600 million in proceeds from the spin-off and additional deleveraging through the disposition of a 19.9% retained stake. The company’s long-term financial targets include adjusted gross margins of 38% or higher and operating margins of 24% or higher.

Western Digital is initiating a dividend in the fourth quarter of fiscal 2025. It is committed to returning 100% of excess cash to shareholders after reaching a net leverage target of 1.0 to 1.5 times EBITDA. Free cash flow generation has significantly improved, from ($1.2 billion) in fiscal 2023 to +$700 million in the last twelve months.

Western Digital aims to lead in data storage by delivering cutting-edge solutions tailored to cloud, AI, and enterprise applications. The company is transitioning to higher-capacity HDDs (40TB+) with EAMR and HAMR to ensure cost-competitive leadership in the AI-driven era.

HDDs remain cost-competitive against enterprise SSDs, with a 3.6 times TCO advantage. The transition to HAMR technology is planned for 2027, with volume shipments expected to reach at least one million units per quarter. HDD manufacturing has a capital intensity of just 5%, compared to 44% for NAND, and significantly lower emissions intensity per TB.

Western Digital is strategically positioned to capitalize on the growing cloud and AI-driven storage demand. With a strong focus on product innovation, cost leadership and disciplined financial execution, the company is set to maintain its leadership in the HDD market while transitioning toward next-gen storage technologies.

The balance sheet deleveraging and capital return strategy further reinforce confidence in its long-term value creation potential.

Cassidy projected third-quarter revenue of $2.25 billion and EPS of $1.10.

WDC Price Action: Western Digital stock is up 0.15% to $40.97 at publication on Tuesday.

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