Wedbush raises its outlook for Seagate and Western Digital as limited hard-drive supply and surging AI data needs put pricing power and profit margins in the spotlight ahead of key earnings reports
Seagate Technology and Western Digital, two of the largest suppliers of high-capacity hard drives for cloud data centers, are drawing heightened attention from investors as artificial intelligence drives a surge in demand for mass storage. Both companies are set to report quarterly results in the coming days, with analysts and market watchers focused on whether tight supply conditions will continue to support higher prices and robust profit margins.
On July 27, shares of Seagate and Western Digital each fell about 6% during midday trading, despite Wedbush raising its price targets for both stocks. The pullback reflects investor caution as the companies approach earnings releases that could clarify whether recent gains in pricing and margins are sustainable. Seagate is scheduled to report its fiscal fourth-quarter and full-year results after the market closes on July 28, while Western Digital will follow with its own report on August 5.
AI Demand and Supply Constraints
Wedbush now expects the shortage of high-capacity hard drives to persist well into 2027, as cloud providers reserve storage years in advance to support AI training, inference, and data retention. This dynamic gives Seagate and Western Digital greater leverage in contract negotiations, since hyperscale customers have limited alternatives for large-scale storage. However, much of Seagate's 2027 production is already committed under long-term agreements, meaning the strongest pricing benefits may not be fully reflected until existing contracts reset or new deals are signed at higher rates.
According to reporting by TheStreet, both companies have seen their shares decline sharply in July, with Seagate down about 17% and Western Digital off more than 20% entering the week of their earnings. The recent pullback suggests investors are waiting for more detail on contract pricing, available capacity, and whether production constraints will limit the companies' ability to accept new orders.
Wedbush analyst Matt Bryson raised his price target for Seagate to $1,000 from $825 and for Western Digital to $650 from $540, maintaining Outperform ratings on both. The firm's outlook assumes that constrained supply will continue to support elevated contract prices and margins for the foreseeable future.
Financial Benchmarks and Market Impact
Seagate reported a non-GAAP gross margin of 47% in its fiscal third quarter, up from 36.2% a year earlier, and forecast fourth-quarter revenue of $3.45 billion, plus or minus $100 million. Western Digital posted fiscal third-quarter revenue of $3.34 billion and a non-GAAP gross margin of 50.5%, with guidance for fourth-quarter revenue of about $3.65 billion and a gross margin near 51.5%. These figures leave little room for disappointment, as investors look for evidence that new contracts are being signed at higher prices and that margin gains can be sustained beyond already-committed capacity.
Wedbush's revised targets come as the debate around AI infrastructure shifts from experimentation to scalability. As Bank of America recently noted, the focus for technology investment is now on building systems that can handle the massive data requirements of AI at scale. Storage availability has become as critical as processors and networking equipment in the race to expand AI capabilities.
For context, the S&P 500's top 10 stocks now account for over 40% of the index's value, raising new risks for investors seeking diversification. Some market participants are turning to alternative strategies, such as small-cap and international ETFs, to reduce concentration risk. For more on this trend, see this analysis of how investors are responding to S&P 500 concentration.
Risks and Trade-Offs
While limited supply can boost prices, it also creates a ceiling on revenue growth if manufacturers cannot produce enough drives to meet additional demand. Both Seagate and Western Digital must demonstrate that pricing gains are sufficient to offset any lost sales from constrained production. CEO Dave Mosley of Seagate has previously warned that expanding manufacturing capacity is a lengthy process, with key components such as recording-head wafers facing lead times of nine months or more. Finished drives require additional time to complete, and Seagate's nearline drive capacity is reportedly almost fully allocated through 2027.
Investors will be watching closely for signs that new customer agreements are being signed at higher prices, that recent margin improvements can be maintained, and that commitments extend beyond already-reserved capacity. With both companies operating near the upper end of their historical margin ranges, any indication that profitability is peaking could weigh on shares.
As of the most recent quarter, Seagate's non-GAAP gross margin stood at 47%, while Western Digital's reached 50.5%. Both companies provided revenue guidance for the upcoming quarter-$3.45 billion for Seagate and $3.65 billion for Western Digital-underscoring the high expectations already priced into the stocks.
Looking ahead, Seagate's earnings will provide the first read on whether the recent share price declines have reset expectations or reflect deeper concerns about the sustainability of current profitability. Western Digital will face similar scrutiny when it reports the following week.
Understanding the mechanics of storage supply and demand is crucial for investors evaluating these stocks. In the context of AI infrastructure, storage is not just a supporting component but a central bottleneck that can determine the pace of expansion. As cloud providers race to secure capacity, the balance between pricing power and production limits will remain a key factor shaping the outlook for Seagate, Western Digital, and the broader data storage sector.
