TLDR
- Morgan Stanley selected Seagate and Western Digital among leading IT hardware investments, highlighting AI infrastructure and data center expansion
- Western Digital shares climbed 489% during the previous year, driven by 28% revenue growth and unprecedented 46.1% gross margins
- Second quarter fiscal 2026 revenue reached $3.02 billion, representing 25% annual growth, while hyperscalers secured all 2026 production capacity
- Western Digital divested a $3.17 billion SanDisk stake during February 2026, directing proceeds toward reducing long-term obligations
- Shares 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 year. Share prices surged approximately 489% from March 2025 through March 2026, advancing from $44 to $259.
This remarkable rally resulted from robust revenue expansion combined with widening profitability. Overall revenues increased 28% to $10.73 billion, while net income margin expanded from 15% to 35.4%.
Morgan Stanley recently elevated Western Digital and Seagate Technology to top-ranked positions among IT hardware stocks. The financial institution identified AI infrastructure investment and cloud data center buildout as primary catalysts supporting both companies.
Western Digital Corporation, WDC
Seagate delivered fiscal second-quarter revenue of $2.83 billion alongside earnings per share of $3.11, surpassing analyst projections on both metrics. Cantor Fitzgerald subsequently increased its valuation target for the storage company.
Regarding Western Digital, Morgan Stanley emphasized strengthening conviction around AI capital expenditure as a fundamental catalyst. Analysts identified memory pricing dynamics and recent share price fluctuation as elements warranting investor attention.
AI Demand Drives Hardware Growth
Western Digital’s fiscal 2026 second quarter produced revenue of $3.02 billion, marking 25% year-over-year expansion. This growth stemmed primarily from hyperscalers — major cloud infrastructure providers — purchasing high-capacity hard disk drives in substantial volumes.
The company achieved a record non-GAAP gross margin of 46.1% during this period. This outcome demonstrates enhanced operational efficiency following Western Digital’s separation of its lower-margin flash storage operations.
Western Digital approved a fresh $4 billion share repurchase authorization during February 2026. The company produced $599 million in free cash flow during Q1 FY2026 to underpin this initiative.
Balance Sheet Changes and Stock Pullback
During February 2026, Western Digital completed a sale of approximately $3.17 billion in SanDisk holdings. The company allocated these proceeds toward reducing long-term debt obligations, prompting S&P Global Ratings to upgrade Western Digital’s credit standing to BBB-.
Both Morgan Stanley and Cantor Fitzgerald elevated their valuation targets for Western Digital after these strategic moves.
Despite solid underlying fundamentals, Western Digital shares have declined roughly 16% from peak levels. Analysts attribute this retreat to widespread technology sector pressure combined with questions surrounding the SanDisk divestiture.
Western Digital’s 2026 hard disk drive manufacturing capacity has been completely reserved by hyperscaler clients.
