Summit downgrades Western Digital, says ’transition to HAMR creates risk’

Investing.com -- Equity research firm Summit Insights downgraded Western Digital to Hold, citing risks tied to the company’s shift to heat-assisted magnetic recording (HAMR) technology in its hard disk drive business.

While hard disk drive demand-supply dynamics could remain favorable in the near-to-medium term, Summit analyst Kinngai Chan believes the HAMR transition "creates risk." He also expects higher costs during the transition that could weigh on gross margins in 2027, with average selling price (ASP) per exabyte forecast to decline that year when HAMR drives begin shipping, after four straight quarters of sequential increases.

Long-term supply agreements with large customers, the analyst added, could further limit margin upside. "We think most of the positives have already been priced into the stock and expect financial outperformance to moderate into 2027," Chan said.

The downgrade follows Western Digital’s latest quarterly update. The company forecast first-quarter revenue of $4.1 billion, plus or minus $100 million, with the midpoint slightly above the average analyst estimate of $4.04 billion, according to LSEG data. It also guided to adjusted profit of $4 per share, plus or minus 15 cents, above the $3.81 estimate.

Despite the upbeat guidance, shares fell more than 15% in premarket trading Thursday, as the forecast failed to impress investors following a year in which the stock had tripled on expectations of sustained AI-driven growth.

Demand from AI data centers remains strong, but rising memory prices have slowed consumer electronics replacement cycles, weakening demand in the personal computer and consumer hard drive markets where Western Digital also operates. That weakness in smaller segments could offset some of the momentum from the company’s core data center business.

For the fourth quarter, Western Digital reported a 44% rise in revenue to $3.75 billion, beating the $3.69 billion estimate. Adjusted profit came in at $3.56 per share, ahead of the $3.30 estimate.

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