After Toshiba reported news of HDD production expansion, Morgan Stanley turned more bullish rather than bearish.
Morgan Stanley’s research indicates that the market has seriously overestimated Toshiba’s expansion scale — the doubling of capacity at its Philippines plant over two years translates to an annualized growth rate of about 30%, which is similar to the overall industry supply growth rate and far lower than demand growth. More importantly, channel checks show that Seagate and Western Digital have no intention of following suit with capacity expansion, and there are no signs of loosening in industry pricing.
Toshiba announced an investment of 60 billion yen to expand its hard disk drive (HDD) plant in the Philippines, following which Seagate (STX) and Western Digital (WDC) both saw over 10% single-day declines. However, after conducting extensive channel checks across the industry, Morgan Stanley arrived at a completely different conclusion: this is not the end of the story, but instead a buying opportunity.
The team led by Morgan Stanley analyst Erik W. Woodring found through channel checks that the scale of Toshiba’s capacity expansion has been severely overestimated by the market—the annualized growth rate resulting from the planned doubling of the Philippines plant’s capacity over two years is only about 30%, in line with the overall industry supply growth rate, and far below demand growth. More critically, channel checks indicate that neither Seagate nor Western Digital intends to follow with their own expansions, and there are no signs of price softening in the industry. Morgan Stanley reiterated its Overweight ratings on both stocks, continued to list Seagate as its top pick, and set price targets of $1,187 and $676, representing upside of roughly 40% and 64% from Friday’s closing prices, respectively.
Meanwhile, the firm’s channel research also unearthed two additional bullish signals: a clear acceleration in HDD demand over the past one to two months, and a continuous emergence of new customer groups (including emerging cloud service providers and physical AI companies). The spot trading price for nearline storage not under long-term contracts has reached $0.03 to $0.05 per GB, with some transactions even higher—well above the current contract average price of $0.015, thereby offering real-world support for the firm’s bullish profit forecasts.
The Expansion Scale is Overestimated and Timeline Uncertain
Morgan Stanley’s channel checks first clarify the market’s misunderstanding of Toshiba’s expansion scale.
As understood by the firm, this doubling of capacity only targets Toshiba’s Laguna Technopark plant in the Philippines, which mainly used to produce non-nearline HDDs and accounts for only two-thirds of Toshiba’s overall capacity. Taking FY2025 as the base year, doubling the capacity over two years equates to only about a 30% annualized growth rate—matching overall industry supply growth and still falling significantly short of rapidly increasing demand.
Morgan Stanley estimates that even if Toshiba completes its goal as scheduled, its additional nearline storage capacity over two years would be less than 150EB—a scale far behind what Seagate alone achieves with about 25% annual nearline EB growth through HAMR technology.
It’s noteworthy that this expansion plan was already known in the industry and is not a new development; it was merely mentioned publicly at the 30th anniversary event for Toshiba’s Philippine subsidiary, after which Nikkei issued a correction regarding the timeline in its report.
Industry sources were blunt: "This news won’t change anything." In addition, Toshiba’s core components such as magnetic heads and disks depend on external suppliers like TDK and Resonac, and several contacts believe that supply chain coordination will be the primary bottleneck limiting the realization of actual capacity increases.
The 30% Market Share Target is Outdated, Realistic Room is Limited
The "30% market share in the near term" target cited by Nikkei in its report also sparked market concerns. Morgan Stanley pointed out that this target was already proposed back in 2022, not something newly set, and Nikkei merely included this old statement for context.
From a mathematical standpoint, Toshiba’s annualized capacity growth of about 30% is in line with industry-wide supply growth, and thus does not provide any basis for substantial market share gains.
Morgan Stanley roughly calculated that to achieve 30% market share by 2028, Toshiba would need to increase its capacity fivefold by the end of 2027, which is virtually impossible. Channel contacts generally see a 12% to 13% market share goal as more credible, and view the 30% figure largely as posturing.
The technical gap cannot be ignored either. Toshiba still relies mainly on MAMR technology, and its latest 40TB (12-disk) model has already encountered delays, while the mass production timeline for HAMR technology lags industry peers by several years. As major cloud providers pursue higher per-drive capacities and fewer drives, Toshiba’s low-capacity, high-unit-count products add extra burdens for customers in terms of space, power consumption, and heat dissipation.
Pricing and Competitiveness Unchanged, Supply Discipline Remains
The most important conclusion from Morgan Stanley’s channel checks: Neither Seagate nor Western Digital has adjusted their own capacity plans, and Toshiba has not resorted to price wars to capture market share—the industry’s pricing structure remains unchanged.
Industry contacts said Toshiba’s own capacity is currently fully sold, consistent with Seagate and Western Digital, and it is also sharing in the upside from rising nearline storage prices.
According to Morgan Stanley, Seagate’s nearline storage capacity is already sold out through 2026, and Western Digital is still negotiating to extend long-term agreements through 2031. The 60 billion yen investment is mainly for restarting idle production lines, testing equipment, and tooling, with no plans for new facility construction and some capital expenditures already booked in advance. Industry contacts indicated that Toshiba’s reasonable upper limit for market share is in the "low to mid-teens" and does not pose any real threat to industry pricing.
Accelerating Demand and Soaring Spot Prices Add Upside Potential
In addition to clarifying concerns related to Toshiba, Morgan Stanley’s channel research identified two more positive signals for the HDD sector.
First, HDD demand has clearly accelerated in the past one to two months.
Morgan Stanley believes that agentic AI is an emerging incremental demand driver—compared with traditional chatbot workloads, AI agents must continuously store more data and contextual information across multiple interactions, significantly boosting the density requirements for HDD storage. Meanwhile, the source of demand is expanding: as CSP storage tightens and NAND flash prices remain 17-20 times higher than HDDs, new cloud providers and humanoid/physical AI companies are becoming new HDD buyers but face major procurement difficulties due to the supply gap (about 300EB this year, projected to rise to 400EB by 2027/2028).
Second, spot pricing continues to exceed expectations.
In research earlier this June, Morgan Stanley had recorded that HDD manufacturers set their nearline storage pricing target at $0.025–0.03 per GB by 2027/2028 (from the current $0.015). The latest channel information shows that non-contracted nearline spot trades have already reached $0.03–0.05 per GB, or $30–$50 per TB in transaction price—with some cases even higher. Morgan Stanley states that while these spot prices cannot be extrapolated across the entire market yet, real transaction data shows that the pricing basis for its bull-case profit forecast is becoming increasingly convincing.
Attractive Valuations, Morgan Stanley Reiterates Overweight
Based on the above analysis, Morgan Stanley believes that Friday’s sharp pullback created a significant buying opportunity, not a turning point in the story.
At current prices, Seagate trades at 10x CY28 base-case earnings and 6.8x in a bull case; Western Digital at 8.5x base-case and 5.8x bull-case earnings for CY28. Morgan Stanley noted that even in their base-case, their earnings-per-share forecasts are still 20% to 25% higher than the consensus.
The firm’s target price for Seagate is $1,187, based on a 20x multiple of CY27 EPS of $59.33; Western Digital’s target is $676, based on a 20x multiple of CY27 EPS of $33.80. Both stocks retain an Overweight rating, with Seagate remaining the top pick. Morgan Stanley concludes that the HDD industry is showcasing the fastest growth (with a CAGR above 85%) and most significant margin expansion story under their coverage, and current valuations offer investors a window to buy at a discount.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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