47-year-old tech stock gets new price target on AI demand

My first PC, purchased in 1996, came with a Seagate hard disk drive (HDD) with a capacity of approximately 1.2 GB. The technology has made such a massive jump since then that an HDD of that capacity almost sounds ridiculous.

That reminds me that you could install an operating system on that thing and be left with a lot of space for applications.

Yet today, a huge number of popular applications bundle an internet browser with them, and pretend to be real desktop applications. They take up hundreds of MB, and three or four of them would easily eat the capacity of that 1996 HDD, operating system not included.

Despite HDDs being effectively obsolete with the widespread use of solid-state drives (SSDs), the ever-growing need for more storage space is keeping them alive and well, as they are cheaper.

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With the artificial intelligence boom increasing demand for storage space in data centers, hard drive manufacturers like Seagate and Western Digital can feel good about the future.

WDC Q4 revenue hits $2.61B vs STX's $2.44B

Both companies reported their earnings for Q4 fiscal 2025, at the end of July.

During the earnings call, Seagate  (STX)  CEO and director, William David Mosley, said:

Reflecting our confidence, we expect to resume share repurchases later this quarter, enhancing capital returns to shareholders. Operationally, in fiscal 2025, we started the high-volume ramp of two new nearline platforms, including the industry's first heat-assisted magnetic recording hard drive, an engineering feat more than a decade in the making

Here are the Seagate (earnings) highlights:

• Revenue of $2.44 billion, an increase of 30% year-over year
• Diluted earnings per share (EPS) of $2.24
• Cash flow from operations of $508 million
• Free cash flow of $425 million
• Declared cash dividend of $0.72 per share

Irving Tan, CEO of Western Digital  (WDC) , stated in the earnings release:

Western Digital executed well in its fiscal fourth quarter, achieving revenue and gross margin above the high end of our guidance range while delivering strong free cash flow. In addition, during the quarter, we reduced debt by $2.6 billion, initiated a cash dividend, and announced the authorization of a $2.0 billion share repurchase program, reflecting our confidence in the long-term cash-generating capability of our business.

Here are the WD earnings highlights:

• Revenue of $2.61 billion, up 30% YoY
• Diluted EPS of $0.67
• Cash flow from operations of $746 million
• Free cash flow of $675 million

Bank of America raises STX, WDC price targets on price increases

Bank of America analyst Wamsi Mohan and his team updated their opinion on STX and WDC stocks, following Western Digital's price increases for its HDDs, and also considering Seagate's reported increase in average dollars per TB of HDDs sold during Q2 2025 earnings.

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The team stated: "Although HDD $/TB has historically been in secular decline, we believe demand from AI and limited supply of [exabytes] will be somewhat supportive to prices through [calendar year 2028] as supply increases are limited to increases in areal density."

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Mohan reiterated a buy rating for STX stock and raised the target price from $215 to $255, based on a 20 multiple of his estimate for calendar year 2026 EPS of $12.50. He added that this multiple is above the high-end of its historical price-to-earnings range of 7 to 13, and is warranted in his view as earnings momentum turns positive and peak earnings can be higher than historical peaks.

According to the team, downside risks for STX are:

• Further unit declines in desktops and notebooks,
• Worse than expected industry pricing,
• Increased usage of NAND flash,
• Market share loss to WDC in the enterprise HDD market,
• Degradation of cash position,
• Potential violation of credit facility covenants.

Analysts reiterated a buy rating for WDC stock and raised the target price from $123 to $141, based on 20 multiple their estimate for calendar year 2026 EPS of $7.19. They stated that this multiple compares to the HDD standalone historical average of 7 to 13, adding that this multiple is slightly above the high end of its historical price-to-earnings range and is warranted in their view, as peak earnings can be higher than historical peaks.

Downside risks for WDC are:

• Delays in heat-assisted magnetic recording qualification,
• Worse than expected high-capacity HDD industry,
• Degradation of cash position and lower free cash flow
• Risk of timing of qualification of higher capacity ultra-SMR HDDs.

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