Analysts See 55% Upside in Seagate and Western Digital Despite Chip Sector Weakness

The post Analysts See 55% Upside in Seagate and Western Digital Despite Chip Sector Weakness appeared first on 24/7 Wall St..

CNBC’s Oliver Renick highlighted a split in investor sentiment on his Options Action segment this morning. Melius Research initiated coverage of Seagate and Western Digital as Buy-rated stocks, with price targets about 55% above current levels. Renick reported that options flow leaned bullish in each stock, with roughly twice as many calls bought as puts, but that overall volume was “surprisingly muted” compared with the heat in adjacent memory names.

Seagate: Margins and Cash Flow Reset Higher

Seagate Technology (NASDAQ:STX) closed its March quarter with revenue of $3.11 billion, up 44.1% year over year, and non-GAAP EPS of $4.10 against a $3.50 consensus. Non-GAAP gross margin printed at 47.0%, up from 36.2% a year earlier, and free cash flow reached $953 million versus $216 million in the prior-year quarter. The company also retired roughly $641 million in debt during the quarter.

CEO Dave Mosley framed the setup as durable, telling investors that, “Seagate is entering a new era of structural growth as AI applications amplify data creation and support sustained storage demand.” Guidance for the June quarter calls for revenue of $3.45 billion plus or minus $100 million and non-GAAP EPS of $5.00 plus or minus $0.20.

Western Digital: A Pure-Play HDD Story Crosses 50% Gross Margin

Western Digital (NASDAQ:WDC), now a pure-play HDD company after the February 2025 spin-off of its Flash business into Sandisk, reported Q3 FY2026 revenue of $3.337 billion, up 45.47% year over year, with non-GAAP EPS of $2.72 versus a $2.392 estimate. Non-GAAP gross margin reached 50.5%, and free cash flow came in at $978 million.

CEO Irving Tan tied the result to AI workloads, stating that “Virtually every AI workload, from training, inference, agentic AI to physical AI, creates data that is stored persistently and cost-efficiently on HDDs.” Management also raised the quarterly cash dividend by 20% to $0.15 per share and repurchased $752 million of stock during the quarter. Q4 FY2026 guidance calls for revenue of about $3.65 billion, non-GAAP gross margin of 51%-52%, and non-GAAP EPS of $3.25 plus or minus $0.15.

Memory Stocks Are Sending a Different Signal

While Seagate and Western Digital attracted modestly bullish options activity, the rest of the memory sector looked far less optimistic. Renick noted that Micron was the most actively traded name of the morning, with nearly 300,000 options contracts changing hands and implied volatility around 100. Even so, the stock remained only slightly above its pre-earnings level, suggesting traders are still uncertain about its near-term direction.

SanDisk also came under pressure, with more than twice as many call options sold as bought. The bearish positioning coincided with reports that South Korean rivals SK Hynix and Samsung plan to invest roughly $500 billion in new manufacturing hubs. Renick also noted that the DRAM ETF was down 6.5%, underscoring the broader weakness across memory stocks.

What Investors Should Watch Next

Melius Research believes Seagate and Western Digital are well positioned to benefit from a favorable supply-and-demand backdrop in hard disk drives, a thesis supported by both companies’ record margins, strong free cash flow, and improving shareholder returns.

The next signal to watch is whether options traders begin matching that optimism. If bullish options activity and trading volume increase, it could suggest broader investor confidence is building behind the analyst call. If traders continue favoring hedges in names like Micron and SanDisk instead, it would indicate investors remain cautious about the broader memory sector despite the bullish outlook for Seagate and Western Digital.

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