Western Digital’s stock price has surged over 55% this year, driven by higher demand for memory for artificial intelligence applications. Memory prices have been increasing after a decline last year, with contract prices for NAND flash up 15% to 20% in Q2. The company is also in the process of splitting into two verticals – hard drive and NAND business, with the spinoff expected to be completed in the second half of the year. This move is seen as positive for the company, with CEO David Goeckeler heading the NAND flash memory spinoff company.
Looking at Western Digital’s performance over a longer term, the stock has seen gains of 45% from early January 2021 to around $80 now. However, the stock’s returns have been inconsistent, with underperformance compared to the S&P 500 in 2021 and 2022. Beating the S&P 500 has been difficult for individual stocks in recent years, but the Trefis High Quality Portfolio has outperformed the benchmark each year during the same period, suggesting better returns with less risk.
In the uncertain macroeconomic environment with high oil prices and elevated interest rates, the question arises if Western Digital could face a similar situation as in 2021 and 2022 and underperform the S&P over the next year. From a valuation perspective, WDC stock seems appropriately priced at its current levels, trading at 1.9x sales compared to the 1.1x average over the last five years. The company’s restructuring plans and expected sales pickup after a fall in fiscal 2023 justify an uptick in valuation multiple.
Western Digital posted solid growth in exabytes shipped for its cloud, HDD, and flash businesses in Q3’24, with expectations for this trend to continue. AI is driving demand for memory and storage, supporting increased data processing. While the company appears to be on the right track with a recovery in sales and earnings in sight, WDC stock may remain volatile in the near term, reacting to demand and storage pricing trends as well as updates related to the spinoff of the NAND business.
While Western Digital’s stock looks appropriately priced, it is valuable to see how the company’s peers fare on important metrics. Peer comparisons can provide insight into industry trends and help investors make informed decisions. With Western Digital’s positive outlook and the expected growth in demand for memory and storage, the company seems well-positioned for future success in the evolving technology landscape.
