Morgan Stanley Elevates Western Digital (WDC) and Seagate (STX) as Leading Hardware Plays for 2026

TLDR

• Morgan Stanley selected Western Digital and Seagate as premier IT hardware investments, highlighting AI infrastructure and data center expansion as primary catalysts
• Western Digital shares surged 489% in twelve months, powered by 28% revenue expansion and unprecedented 46.1% gross profit margins
• Fiscal 2026 Q2 revenue reached $3.02 billion, representing 25% annual growth, with full-year production capacity secured by major hyperscalers
• Western Digital divested a $3.17 billion SanDisk position in February 2026, deploying proceeds toward reducing long-term obligations
• Shares have retreated approximately 16% from peak levels amid broader technology sector weakness

Western Digital emerged as a standout performer in the hardware space throughout the previous twelve months. Between March 2025 and March 2026, the company’s stock price skyrocketed approximately 489%, climbing from $44 to $259 per share.

This remarkable ascent stemmed from robust top-line expansion coupled with margin improvement. Annual revenues increased 28% to reach $10.73 billion, while net profit margin expanded dramatically from 15% to 35.4%.

Morgan Stanley recently designated both Western Digital and Seagate Technology as its highest-rated IT hardware equities. The financial institution attributed these selections to accelerating artificial intelligence infrastructure investments and expanding cloud data center deployments.

Western Digital Corporation, WDC

Seagate delivered fiscal Q2 revenue of $2.83 billion alongside earnings per share of $3.11, surpassing Wall Street projections on both metrics. In response to these results, Cantor Fitzgerald increased its valuation target for the storage manufacturer.

Regarding Western Digital, Morgan Stanley emphasized increasing conviction surrounding AI capital expenditure trends as the central thesis. The firm’s analysts also identified memory chip pricing dynamics and recent share price fluctuations as monitoring points for investors.

AI Demand Drives Hardware Growth

Western Digital’s fiscal 2026 second quarter delivered $3.02 billion in revenue, marking a 25% year-over-year advancement. This expansion originated predominantly from hyperscale cloud providers purchasing high-capacity hard drives in substantial volumes.

The storage specialist achieved a record non-GAAP gross margin of 46.1% during this period. This milestone demonstrates enhanced operational performance following the separation of its lower-margin flash memory operations.

Western Digital additionally approved a fresh $4 billion stock buyback authorization in February 2026. The enterprise produced $599 million in free cash flow during fiscal 2026’s first quarter to fund this initiative.

Balance Sheet Changes and Stock Pullback

During February 2026, Western Digital monetized approximately $3.17 billion worth of its SanDisk holdings. The company allocated these funds toward retiring long-term debt obligations, a move that prompted S&P Global Ratings to elevate Western Digital’s credit rating to BBB-.

Both Morgan Stanley and Cantor Fitzgerald subsequently raised their price objectives for Western Digital in light of these strategic moves.

Notwithstanding these positive fundamentals, Western Digital’s shares have declined roughly 16% from their 52-week peak. Market observers attribute this retracement to widespread technology sector volatility and questions surrounding the SanDisk divestiture’s implications.

Western Digital’s hard disk drive manufacturing capacity for 2026 is reportedly fully committed through contracts with hyperscale customers.

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