Western Digital (WDC) Stock Forecast & Price Target

Western Digital is poised for significant revenue growth, with projections indicating that cloud services will account for 88% of the company's revenue by FY25, up from 75% in FY22 and 55% in FY19. Additionally, the nearline HDD total addressable market (TAM) is expected to expand at a compound annual growth rate (CAGR) of 14%, driven largely by advancements in artificial intelligence, with projected growth from $13 billion in CY24 to $23 billion in CY26. Furthermore, the introduction of a quarterly dividend beginning in Q4 FY25, along with expectations for meaningful growth in dividends, further enhances the company’s financial attractiveness.

Western Digital faces significant risks related to potential oversupply and pricing weakness, which may result in lower profitability and highlight the cyclical nature of the HDD industry, with normalized earnings power likely remaining unchanged. The company's strategy to prioritize profit over market share could lead to prolonged periods of undersupply, potentially disappointing investors who had high expectations for gross margins exceeding 40%. Additionally, while the leverage ratio may improve with the monetization of its SNDK asset, the market's reaction suggests that investor confidence could be wavering amid subdued guidance and performance expectations.