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

Core Viewpoint - Benchmark analyst Mark Miller upgraded Western Digital Corp from Hold to Buy with a price target of $55, citing attractive valuations and growth potential in data center spending and AI opportunities [1] Group 1: Company Performance and Valuation - Western Digital stock is currently trading at the low end of its historical valuation range, which typically spans from mid-single digits to teen multiples [1] - The company reported a record Nearline Exabytes (EB) shipment and Data Center sales last quarter, indicating strong demand in the data center segment [3] - Projected third-quarter revenue for Western Digital is $2.70 billion with an EPS of $1.32, an increase from the prior estimate of $1.12 [5] Group 2: Industry Trends and Opportunities - Nearly two-thirds of companies using cloud storage expect their cloud-based storage to grow by over 100% in the next three years, indicating a significant market expansion [2] - Major cloud service providers, including Alphabet, Amazon, Meta, and Microsoft, are expected to increase their combined capital expenditure by 40%, from approximately $230 billion in 2024 to $322 billion in 2025 [2] - Approximately 89% of data stored by leading cloud service providers is on hard drives, which positions Western Digital favorably as data center spending continues to rise [3] Group 3: AI and Storage Cost Dynamics - The unit price per GB for nearline storage HDDs is $0.013, significantly lower than the $0.123 per GB for large capacity SSDs, making HDDs more cost-effective for data storage [4] - The growth of AI applications is expected to increase the demand for data storage, favoring hard drives over flash storage due to the need for long-term data retention [4] - The anticipated ramp-up of PCs with AI chips in the second half of 2025 is expected to drive a refresh cycle for PCs, further benefiting Western Digital [5]