Western Digital (NASDAQ: WDC) has experienced a surge in stock price of over 55% this year, attributed to higher demand for memory targeted at artificial intelligence applications. The rise in WDC stock can also be seen in Seagate (NASDAQ: STX), which saw gains of over 25%. Memory prices have been increasing after significant declines last year, with TrendForce estimating contract prices for NAND flash to be up 15% to 20% in Q2 of this year. The demand is not only coming from AI applications but also the PC market and high-end smartphones. Western Digital is in the process of splitting into two verticals — hard drive and NAND business, with the CEO of Western Digital, David Goeckeler, set to head the NAND flash memory spinoff company.
Looking at the performance of WDC over a longer term, the stock has seen gains of 45% from early January 2021 to around $80 now, compared to a similar change for the S&P 500 over the same period. However, the stock’s returns have been inconsistent, with returns of 18% in 2021, -52% in 2022, and 66% in 2023. The Trefis High Quality Portfolio, with a collection of 30 stocks, has consistently outperformed the S&P 500 each year over the same period, providing better returns with less risk compared to individual stocks.
In the current uncertain macroeconomic environment, with high oil prices and elevated interest rates, the question arises whether WDC could face a situation similar to 2021 and 2022 and underperform the S&P over the next 12 months. From a valuation perspective, WDC stock seems appropriately priced at its current levels of $80, aligning with its estimated valuation of $76 per share. Western Digital posted solid growth in exabytes shipped for its cloud business, HDD, and Flash business in Q3’24, with AI driving demand for memory and storage to support increased data processing.
Despite the positives, WDC stock may remain volatile in the near term, reacting to demand and storage pricing trends, as well as updates related to the spin-off of the NAND business. While Western Digital appears to be on the right track with a recovery in sales and earnings in sight, much of the positives seem to be already priced in. It is important to compare Western Digital’s performance with its peers to gauge its standing in the industry and make informed investment decisions. With the restructuring plans and expected pickup in sales after a meaningful fall in fiscal 2023, Western Digital is poised for growth in the coming quarters.
