Morgan Stanley Picks Its Top Hardware Stocks for 2026 — Seagate and Western Digital Make the Cut

TLDR

• Morgan Stanley named Seagate and Western Digital as top IT hardware stocks, citing data center and AI spending as key drivers
• Western Digital stock rose 489% over the past year, fueled by a 28% revenue increase and record 46.1% gross margins
• Q2 FY2026 revenue hit $3.02 billion, up 25% year-over-year, with 2026 production capacity fully booked by hyperscalers
• Western Digital sold a $3.17 billion stake in SanDisk in February 2026 and used proceeds to pay down long-term debt
• The stock has since pulled back roughly 16% from its 52-week high following a broader tech sector sell-off

Western Digital has been one of the best-performing stocks in the hardware sector over the past year. The company’s shares climbed roughly 489% between March 2025 and March 2026, rising from $44 to $259.

That surge was driven by strong revenue growth and expanding profit margins. Total revenues grew 28% to $10.73 billion, while net income margin jumped from 15% to 35.4%.

Morgan Stanley recently named Western Digital and Seagate Technology as its top-ranked IT hardware stocks. The bank pointed to AI infrastructure spending and cloud data center expansion as the main reasons behind both picks.

Western Digital Corporation, WDC

Seagate reported fiscal second-quarter revenue of $2.83 billion with earnings per share of $3.11, both beating analyst estimates. Following those results, Cantor Fitzgerald raised its price target on the company.

For Western Digital, Morgan Stanley pointed to growing confidence in AI capital spending as a primary driver. Analysts also flagged concerns about memory pricing and recent stock volatility as factors investors should watch.

AI Demand Drives Hardware Growth

Western Digital’s second quarter of fiscal 2026 saw revenue of $3.02 billion, up 25% year-over-year. The growth came largely from hyperscalers — large cloud companies — buying high-capacity hard disk drives at scale.

The company reported a record non-GAAP gross margin of 46.1% in that quarter. That result reflects increased operating efficiency after Western Digital spun off its lower-margin flash storage business.

Western Digital also authorized a new $4 billion share repurchase program in February 2026. The company generated $599 million in free cash flow in Q1 FY2026 to support that plan.

Balance Sheet Changes and Stock Pullback

In February 2026, Western Digital sold a roughly $3.17 billion stake in SanDisk. The company used those proceeds to pay down long-term debt, which S&P Global Ratings recognized when it upgraded Western Digital’s credit rating to BBB-.

Both Morgan Stanley and Cantor Fitzgerald raised their price targets on Western Digital following these developments.

Despite the strong fundamentals, Western Digital’s stock has pulled back about 16% from its 52-week high. Analysts point to a broader tech sector sell-off and uncertainty around the SanDisk stake sale as contributing factors.

Western Digital’s 2026 production capacity for hard disk drives is reported to be fully booked by hyperscaler customers.

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