Memory stocks grab the AI headlines: Is this drive maker the bigger bargain?

Investing.com and Yahoo Finance LLC may earn revenue on some items through affiliate links. The AI sector often benefits chip manufacturers, but this week, memory storage companies faced a sharp decline. Democratic midterm elections sparked discussions about AI regulation, prompting Western Digital (NASDAQ:WDC) to drop 13.5% on Thursday and 26.7% over the past month.

Micron Technology (NASDAQ:MU) also experienced a sell-off alongside Western Digital. Despite this, data storage remains essential, and hard drives are the most cost-effective option. The ProPicks AI Tech Titans strategy aims to differentiate between lasting demand and panic by evaluating fundamental factors. This strategy includes a leading chip inspection company, a specialty contract chipmaker, and an enterprise development platform.

Flash storage remains five to eight times pricier per terabyte than nearline hard drives, leading hyperscalers to continue purchasing hard drives for cold storage and inference archives. Western Digital spun off its flash business in February 2025, focusing solely on high-capacity enterprise drives. Approximately 90% of its revenue stems from cloud customers, with long-term contracts extending visibility to 2030 and 2031.

Fiscal 2027 production is already sold out. The latest quarter showed a 55% revenue increase to $4.38 billion, with gross margins expanding by 1,420 basis points to 58.1%. Free cash flow reached $1.4 billion, and the company ended with $500 million in net cash. Management projected second-quarter revenue at $5.1 billion, representing a 69% increase from the prior year.

The company expects exabyte demand to grow by more than 25% annually over the next five years. A 17% dividend increase followed the results. Western Digital's stock has become more affordable on a per-share earnings basis, with a price-to-earnings ratio of 12.2 and 12.8 times its fiscal 2027 estimates, dropping to 7.95 times for fiscal 2028.

The company's PEG ratio is 0.04, compared to Seagate's 29.1 times trailing earnings. The stock trades at $476.3, a 78.0% upside from its current $267.6 price, according to InvestingPro's Fair Value. Analysts project further upside, with a consensus target of $613.38 and 16 upward revisions. The investment's financial health is rated as "Great" due to strong growth and profitability, and a robust net cash balance sheet.

Risks include customer concentration, accounting for roughly 88% to 90% of revenue from a few hyperscale buyers, capital spending near 8% of revenue for the next two years, and an 11% decline following October's earnings beat on pricing concerns. The recent sell-off likely stems from a regulation announcement rather than Western Digital's order book.

With fiscal 2027 production already secured, Western Digital boasts impressive results: 55% revenue growth, $1.4 billion in free cash flow, and net cash. ProPicks AI strategies refresh their universes monthly, and Tech Titans has updated its holdings. Access to all ProPicks AI strategies costs $9 per month. The author does not hold any positions in the mentioned stocks. Data and financial metrics are current as of November 5, 2026.