Key insights
- Morgan Stanley named Seagate a top pick, citing a global shortage of storage and memory components potentially lasting until 2028, fueled by AI demand. They raised Seagate's price target to $582. Other data storage stocks like Western Digital, Micron, and Sandisk also rose. This suggests continued strength in the sector, driven by fundamental supply constraints and AI-related demand, potentially benefiting US equity markets.
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Seagate Technology's stock is surging to fresh highs. One group of analysts thinks the rally can keep rolling.
Shares of Seagate (STX) jumped nearly 6% Monday to close at a record high just above $453, as analysts from Morgan Stanley named the hard drive maker their "top pick" in IT hardware. Other data storage and memory stocks, including Western Digital (WDC), Micron Technology (MU), and Sandisk (SNDK), climbed along with it to rank among the biggest gainers in the S&P 500 Monday.
The analysts said they chose Seagate over rival Western Digital (WDC) as their top pick, given expectations it could have more room to rise and boost margins faster. However, both stocks are seen benefiting from a global shortage of storage and memory components that could last until 2028, the analysts wrote in a Monday note.
Many investors may be wondering how much longer memory and hard drive stocks can keep climbing. Morgan Stanley is suggesting that the boom in AI demand and shortage of components underpinning their gains could last years.
Investors "continue to under-appreciate the fundamental strength" the shortage is creating for makers of hard drives like Seagate and Western Digital, the analysts said.
Morgan Stanley lifted its price target for Seagate to a new Street high of $582 from $468, and to $380 from $369 for Western Digital. That would suggest the analysts see the stocks rising roughly 28% and 25%, respectively, from Monday's levels.
Memory stocks have been rallying for much of the last year as investors have flocked to "pick-and-shovel" companies behind the hardware used to power big tech companies' AI data centers.
With Monday's gains, Seagate's stock is up 65% since the start of the year. Sandisk has more than tripled in value over the same period, while Western Digital's stock soared about 77%, and Micron added 32%, at a time when the broader S&P 500 lost 3%.
This article has been updated since it was first published to reflect more recent prices.