Citi remains bullish on storage stocks amid a cyclical demand recovery

Citi analysts reaffirmed their positive outlook on storage stocks in a note to clients Friday. They specifically highlighted Seagate Technology (STX) and Western Digital (NASDAQ:WDC) and anticipate a cyclical demand recovery in the storage market.

The investment bank reiterated their Buy ratings for both companies, stating it is driven by expectations of a resurgence in storage demand led by hyperscalers and a favorable supply-demand environment.

"Following several quarters of storage digestion, capex cuts, and workforce reductions, we expect storage media industry dynamics to continue improving on return of pent-up storage demand led by hyperscalers," they wrote. 

Seagate Technology (STX): Citi's analysts have increased their target price for Seagate to $120 from $110, citing the beginning of a cyclical recovery in the HDD market, particularly from enterprise and hyperscaler clients.

The analysts highlight the potential for AI-driven storage demand growth and rational capacity additions alongside cost improvements driven by Heat-Assisted Magnetic Recording (HAMR) technology.

These factors are expected to enable Seagate to achieve higher revenue and earnings growth, coupled with an enhanced pace of shareholder returns. The report notes, "We raise our estimates on better-than-expected 2Q capacity shipments and a continued favorable supply-demand and pricing environment supporting margin and profitability improvement."

Western Digital (WDC): Citi also has a bullish outlook for Western Digital, with the bank raising the target price to $95 from $90. The analysts emphasize the company's exposure to both HDD and SSD markets, improved margins, and a capacity-constrained flash industry.

Citi notes, "Our estimates go higher on improved margins supported by solid supply/demand conditions in the near to mid-term." Furthermore, they explain that the potential spinoff of Western Digital's Flash business later this year is expected to unlock additional value, enhancing the company's growth prospects.

Overall, the analysts at Citi remain optimistic about the storage sector, forecasting robust demand recovery and improved market dynamics, which they believe bodes well for both Seagate and Western Digital.