Bernstein upgrades the rating on TurboTax after pullback, Western Digital shares rise

Investing.com - Bernstein upgraded Western Digital’s rating from “market performance” to “outperform the market,” and raised its price target from $170 to $340, believing that the sharp pullback caused by market concerns about Google’s newly launched TurboQuant compression algorithm created a buying opportunity that is disconnected from fundamentals.

This selloff pushed Western Digital down 21% from its recent high, which is an overreaction. Peer Seagate and SanDisk also fell.

However, after the rating upgrade, Western Digital was up 2.3% in premarket trading on Wednesday.

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Bernstein said that TurboQuant is a compression algorithm released last week by Google’s research institute. It is only used to compress the KV cache during AI inference and does not affect demand for hard drive units. Its impact on NAND flash was described as negligible, because flash is only used to offload cold cache.

Analyst Mark Newman said in a report: “The impact on hard drive unit demand is zero.”

Bernstein also became more optimistic about the storage sector overall. The firm currently expects that from fiscal year 2025 to fiscal year 2030, the combined revenue of Western Digital and Seagate will grow at a 24% compound annual growth rate (CAGR), driven by 24% capacity growth and stable pricing.

This marks a much more optimistic outlook than the 18.7% capacity growth and 3.6% annual price decline assumed previously.

Newman wrote: “AI workloads, richer content creation, longer data retention requirements, and stricter data sovereignty standards are all driving growth in demand and average selling prices (ASP).”

Specifically for Western Digital, the analyst said he was encouraged by the ePMR technology roadmap the company showcased at its 2026 Innovation Day. The technology effectively extends the use life of its traditional drive technology by one to two years, surpassing earlier expectations.

However, he interpreted continued attention to ePMR as a subtle signal that Western Digital’s transition to heat-assisted magnetic recording (HAMR) may progress more slowly than originally planned.

Bernstein assumes Western Digital will begin mass production of HAMR in 2027, reaching about 5% of nearline shipment volume that year, while Seagate will be about 70% over the same period.

Seagate remains Bernstein’s top pick in the sector, keeping an “outperform the market” rating and raising its price target from $500 to $620.

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