Shares of computer drive manufacturer Western Digital (NASDAQ:WDC) jumped higher on Monday following a strong endorsement by Morgan Stanley analysts. Specifically, they view WDC stock as their “Top Pick,” which, in their view, offers an alternative to Nvidia (NASDAQ:NVDA). Adding clout to the assessment, experts believe that the underlying NAND flash memory market could recover this year.
According to a Seeking Alpha report, Morgan Stanley analysts led by Joseph Moore believe that while NVDA has printed a robust performance in the past month, they anticipate more upside potential from WDC stock. To be clear, the market experts state that Nvidia remains their preferred player in the computing space. However, all enterprises directly linked to the artificial intelligence (AI) value chain have rallied.
Even though Nvidia moved up less vigorously than its peers, the analysts noted that investors should consider some industry-wide headwinds materializing in the second half of this year. However, WDC stock has essentially slipped under the radar, leading to a valuation disparity. Also, Western Digital will split up in the back half of 2024: one enterprise will focus on hard drives while the other will concentrate on flash memory.
As a result, Morgan Stanley anticipates that this split will unlock the full sum of the individual parts.
WDC Stock Represents a Tricky but Compelling Call
On the surface, the relatively undervalued nature of WDC stock seems readily apparent. In the past 52 weeks, Western Digital shares gained 38% of equity value. On the other hand, NVDA gained about 212% during the same period. Still, WDC’s performance came in the final weeks of last year, raising some concerns.
Fundamentally, NAND demand suffered in 2023 due to significant price declines. According to a Forbes article, this flash memory category was “basically selling at the cost of production.” Financially, Western Digital absorbed a massive hit. In the fiscal year that ended in June 2023, the company posted revenue of only $12.32 billion, down more than 34% against the prior year’s result.
Still, on the positive side, some experts believe that the NAND market — along with DRAM — should see an increase in demand, amounting to 16% and 13% up, respectively. Part of the reason centers on industry-wide scale-backs of supply. Also, over the longer term, NAND flash storage devices find increasing adoption in AI and edge computing systems.
Notably, several research firms offer various projections of the underlying NAND market:
- Mordor Intelligence estimates that the sector will reach a valuation of $68.87 billion by 2029, representing a compound annual growth rate (CAGR) of 5.43% from 2024.
- Astute Analytica forecasts that the ecosystem will print a value of $101.9 billion by 2031, a CAGR of 16.65% from 2023.
- Straits Research anticipates that the market will hit $117 billion by 2030, a CAGR of 6.39% from 2022.
Given the bullish projections, Morgan Stanley may be onto something regarding WDC stock.
Why It Matters
According to TipRanks, analysts rate WDC stock a consensus strong buy. This assessment breaks down as 12 buys, four holds and zero sells. However, with the recent performance, the average price target of $55.50 now implies about 4% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
