Few stocks capture the excitement and concern of Artificial Intelligence (AI)’s potential boom Rating of the company Western Digital Corporation NASDAQ: WDC. In the middle of last month, the stock was one of the market’s best performers of the year, riding the relentless demand for data storage to big gains. Yet the past few weeks have been a sharp reminder that nothing goes up in a straight line.
Shares have fallen nearly 40 percent from June highs as broader AI trading has faltered, with investors growing concerned that higher prices across the storage and memory space may have gone too far. However, even after that decline, Western Digital’s shares are still up significantly for the year to date, which nicely puts the question facing investors today.
For the company due to report earnings in Aug. 5, is this pullback an opportunity to buy AI theme’s big winners at a discount, or a warning that the stock rally is running out of steam?
Western Digital’s Bull Case Is Just Beginning for AI Storage Demand
Let’s start with why the stock worked so hard in the first place. Western Digital sits at the heart of the current dynamic supply and demand imbalance in technology. The explosion in AI infrastructure has sent demand for storage skyrocketing, while supply remains tight, giving manufacturers like Western Digital significant pricing power.
That dynamic has been seen throughout the business. Revenue has been growing rapidly year over year, while the company has generated enough cash to raise its dividend and buy back some of its stock.
Wall Street Didn’t Miss Out on the AI Storage Trade
The analyst community has clearly taken notice, as Morgan Stanley recently raised its price target to $650, arguing that the successive margin corrections leave enough room for another beat. With Citigroup’s renewed price target of $800 from earlier this month, and a nearly 40% upside, it’s easy to see why Western Digital has a Moderate Buy consensus rating.
Most importantly, the tailwinds driving these bullish reviews all look strong. Data center spending is expected to continue to rise for years to come, driven by the same AI innovations that have powered the last meeting to date. The thinking is that if this demand is there, Western Digital’s pricing power should keep up with it.
Salary Will Check Margin Issue
Western Digital Stock Forecast Today
$520.32
18.27% changedBuy Medium
Based on 24 Analyst Ratings
| Current Price | $439.93 |
|---|---|
| High Forecast | $1,050.00 |
| Average prediction | $520.32 |
| Low Prognosis | $163.00 |
Western Digital Stock Forecast Details
That makes the upcoming earnings report an important test. One of the most watched numbers will be gross margin, which is a clear indicator of whether a company’s pricing power is growing.
Management is targeting healthy total margins, and any sign that comes before that, or guidance higher, could go a long way in confirming the bull case. A continued expansion will tell investors that the strong buying story remains intact and that the recent sell-off was more than noise driven by sentiment. On the other hand, a little reading could give the bears the bullets they’ve been looking for.
Beyond borders, investors will also be paying close attention to what management has to say about pricing and supply later this year. In a story built almost entirely on supply-demand imbalances, any hint that the imbalances are starting to ease would be more important than the underlying income and profit figures.
Estimating Still Leaves Little Room for Error
For all the power in the underlying dynamics, the bears have some legitimate points, and none stronger than Western Digital’s rating. Even after the recent pullback, the stock is still trading at a reasonable value relative to both its historical average and its industry peers.
When a stock goes into the earnings report still so richly priced, the room for error is small, and any disappointment, even if the results themselves are still strong, can be quickly punished.
Investors Should Decide How Much Risk They Should Take Before Investing
This is where it’s hard to ignore the risk/reward profile after such a selloff, especially since the analyst community remains bearish, with targets rising as the stock has fallen in recent weeks.
If demand proves to be as long-lasting as the bulls believe, 40% of previous gains could end up looking like a good entry opportunity in retrospect. For investors who believe that the AI buildout is still in its infancy, buying quality on weakness tends to pay off throughout this cycle, and it would be a smart move to reconsider now.
Before you consider Western Digital, you’ll want to hear this.
MarketBeat tracks Wall Street’s top and most effective research analysts and the stocks they recommend to their clients every day. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Western Digital wasn’t on the list.
Although Western Digital currently has an Average Buy rating among analysts, top analysts believe these five stocks are the best.
View Five Stocks Here
The AI boom is creating opportunities across semiconductors, cloud computing, enterprise software, infrastructure, cybersecurity, and automation.
Inside this report, you’ll find 10 companies positioned to benefit as artificial intelligence moves from hype to the real world and becomes a key driver of American business growth.
Get This Free Report
