Seagate Soars as Toshiba Expansion Raises Concerns About Industry Supply

Seagate Technology and Western Digital, two prominent hard-disk-drive manufacturers, saw significant losses on Friday. Both stocks declined by around 13% during the session due to a report from Toshiba that it plans to double its HDD production capacity by fiscal 2027.

The expansion will require an investment of ¥60 billion (approximately $380 million) and is expected to increase Toshiba's share of HDD capacity from over 10% to 30% in the medium term. This development has raised concerns about the tight industry supply that has been beneficial for Seagate and Western Digital, particularly in light of strong demand from AI data centers.

Despite these challenges, Goldman Sachs analyst James Schneider is optimistic about Seagate's prospects. He believes the company can deliver substantial earnings growth over the next year due to its incremental margins and the rollout of HAMR technology. Schneider also notes that a stronger Seagate will have more room for capital returns as it pays down its remaining debt.

While Schneider expects Western Digital to benefit from cloud customers and disciplined supply, he gives Seagate an edge in terms of share gain over the next year due to the ramp-up of HAMR drives. This has led him to assign a Hold rating to Western Digital, despite predicting 52% upside.