Wells Fargo upgraded Seagate Technology to Overweight and raised its price target to $1,100 from $900, while maintaining an Overweight rating on Western Digital and raising its target to $730 from $575. The firm expects both companies' upcoming fiscal fourth-quarter 2026 earnings to confirm sustained nearline hard drive demand from AI data centers, with capacity growth likely to exceed 25% long-term and margins climbing above 65%. Procurement agreements with major cloud providers already extend through 2030, with capacity largely allocated through 2027.
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Wells Fargo upgraded Seagate Technology from 'Hold' to 'Overweight' and raised its price target from $900 to $1,100; it kept Western Digital at 'Overweight' and raised its price target from $575 to $730. Analyst Aaron Rakers's team expects both companies' fiscal fourth-quarter 2026 earnings to reinforce confidence in long-term growth driven by AI data center demand.
Why it matters
Analysts project nearline hard drive shipment capacity will sustain growth of over 25% over the long term, potentially accelerating above 30% if capacity management remains disciplined. Gross margins are projected to climb above 65%, with some forecasts suggesting above 70%, and average selling prices are expected to grow mid-to-high single digits in the near term, potentially accelerating to low- to mid-double-digit levels between 2027 and 2028. For businesses dependent on cloud storage infrastructure, this signals sustained investment and pricing momentum.
What to watch
Nearline hard drive capacity has largely been allocated through 2027, and planning for 2028 demand has already begun; procurement agreements with major cloud service providers extend through 2030. Free cash flow is expected to remain robust, supporting capital returns.
Wells Fargo's upgraded outlook reflects sustained momentum in cloud infrastructure investment tied to AI expansion. The firm's confidence rests on two anchors: visibility into demand through long-term procurement agreements with major cloud providers, and evidence that average selling prices are moving upward despite elevated supply. The timing of the upgrade ahead of Seagate and Western Digital's fiscal fourth-quarter 2026 earnings suggests the analyst expects those reports to confirm the growth thesis rather than introduce surprises.
The specificity of the margin and pricing forecasts—gross margins above 65%, potentially above 70%, combined with low- to mid-double-digit price growth between 2027 and 2028—points to a favorable supply-demand balance. Capacity allocated through 2027 and planning already underway for 2028 indicate that cloud providers are committing capital well in advance, reducing demand uncertainty. For storage hardware manufacturers, this environment supports both volume growth and pricing power, a combination that typically drives valuation re-rating. The emphasis on robust free cash flow further suggests confidence that profitability gains will translate into shareholder returns.
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