Seagate & Western Digital Just CRASHED — Here’s What Changed

Hey guys, welcome back. Well, we made it. We finished off the week a ton of positive things to count this week, but it but Micron probably didn't have the Friday that we all wanted it to have or at least what I expected it to have. But today's video is going to be something completely different because if you woke up this morning and looked at the market and you looked at the memory sector specifically, you probably saw that the HDD players were under pressure. That's right. Western Digital and Seagate were being heavily sold off this morning and the first reaction that you may have had is what is happening to the HD space. Has the has the AI storage cycle hit a wall? Have the hyperscalers has that demand started to slow down? And I think it's the exact opposite. It's not those two things at all. What we actually witnessed this morning or what we witnessed today was the market reacting to the first major physical supply response to the global AI storage bottleneck. Toshiba, that's the third player in this HDD space. They have about a 10% market share in the HDD sector. They officially announced today that they're planning to double their nearline HDD capacity and bring it to market by fiscal 2027. So with that news and with that mindset overall, Wall Street immediately sold sold the pricing power of Seagate and Western Digital. But if you look deeper at the data, this isn't a sign of demand a sign of demand destruction. It's further proof in my mind of just how severe the physical infrastructure bottleneck really is in the marketplace right now. So that's not the only story that caught my eye today though because while the spinning disc storage while they were taking a hit and we on the fear of seeing new supply enter the market we saw the DRAM and the high bandwidth memory side of the stack experiencing experience the exact opposite. They experienced today or what the news shared today is going to be unprecedented pricing power in 2027. Fresh reporting from Wall Street Journal today revealed that Samsung is opening their 2027 HBM4 supply negotiations at three times the current price for HBM3e today. So today we're going to break down both sides of the physical layer. why the storage selloff is giving us a massive market signal and why the memory igopoly of Micron Samsung and SKHix is positioned for an extraordinary 2027. So let's jump in. Let's get started with the video. But if you haven't done it already, make sure you hit like and make sure you subscribe to Market Signal. You guys know I want you to be part of this community. So if you enjoy this content, go ahead and hit subscribe now. All right, let's get started off by just taking a look at the story that I think that broke this morning that I think that just rattled all of the Wall Street investors and and got, you know, ma major concerns I would say about the pricing power and the dominance that we have seen with Western Digital and Seagate. Guys, you have to remember these two companies, they have a duopoly about 90% of the market share within the HDD sector is Western Digital and Seagate. But this news broke this morning around Toshiba and how they're planning to double their AI data center HD capacity by fiscal year 2027 with an investment of 380 million for an expansion in their fabs out in the Philippines. So let's go through some of the stories and then I want to show you the impact that it had on the stocks. So as we go through it says Toshiba is it is planning to significantly expand its HDD capacity. The technology group plans to double that capacity for hard disk drives that are used in AI data centers in 2027 with that investment of $380 million. First off, guys, that is not a very big investment. That's the first thing we have to say. We have to remember that Western Digital and Seagate, their planning for their their capex or their infrastructure buildout is 1.7 billion to meet the demand in the market. So Toshiba with 380 million first off when I read that that's not going to make a dent in the demand that we see but it is the algorithms that see that headline and they just run and sell these companies. So that's the first piece I want you to just think through as we go through this story. But it does mention that this is marks Toshiba's first major HDD investment in around five years. And in addition it's adding production lines at its Philippine plant. Now if you look further, Toshiba does have plans to work towards mass production of a 65 terabyte class HD in 2030 and eventually to get to the road of the 100 terabyte class. We know that Western Digital and Seagate are already well ahead of Toshiba in this space, but they do want to get there as well. And that is the goal honestly for the HD sectors to get to these bigger drives to get to the 100 terab class models. And if we scroll down, you can see what the goal is. So Toshiba currently holds a 10% as I mentioned. Now they aim or what they their goal is is to obtain a 30% share in this sector or in this market in the medium term. Now that that line right there is very ambitious from them. Is it realistic? Probably not. And I want to show you what Jordan Klein says in a moment in the article that was published in Barren. But let's let's dive in further here. You can see the reason why they're expanding. It's because of the boom that we're seeing across the entire memory sector. We see it with DRAM, we see with NAN, HBM, but we're also seeing with the HDD players as well. And so the ongoing memory supply crunch is f is further driving demand for HDDs, particularly nearline models as a a high capacity tier that bridges faster online storage and slower offline store with and slower offline storage. So, Seagate says the vast majority of its nearline HD capacity is already allocated through 2028 with some customers planning demand into 2029 and beyond. And Western Digital has already committed most of its 2027 supply under these long-term agreements with portions of 28 and 29 capacity already covered as well. So, if you're an investor in Western Digital and Seagate, that has to give you some comfort as well. Guys, these both of these companies have supply locked up through 2029. And so, let's go take a look at what it actually did. The impact that it saw we saw right at gap, right at the opening bell. Both of these stocks immediately gap down. Just take a look on your screen. We'll start with Seagate. And you can see I highlighted kind of where we closed on Thursday. The stock closed right there at at 94563. It had a nice day yesterday. was up, but then immediately I just given you the nater of the day over here when this candle where it finally reached to is down to about a low of just under $800. Guys, that was a 140, excuse me, $14,5.70 drop within the first couple hours of opening. That's a 15 and almost a 15 and a half% drop for this stock. Now, that to me is an overreaction to the market. As we go through the stories, I want you to see what Jordan Klein says from Mizuo in a moment about both of these, but I think this is a setup where we're seeing the market overreact based on some headlines and based on fears that Toshiba is going to bring more supply in the market. It actually kind of made me think of the Turboquant story with with Micron earlier this year where we just got fear, uncertainty, doubt, and we drove the prices down. The reality it had no impact on Micron whatsoever. if you were able to get it at a lower entry point, you are so happy right now with the stock. But I think this is what we're seeing right now with Seagate. Also seeing the same phenomenon with Western Digital. But just look also Seagate responded after it hit that nater. You can see I'm going to uh circle it here. It did have a response and picked up in the second half of the day. And the same thing exactly is what we saw with Western Digital. Now Western Digital, they closed yesterday at 462 and they dropped by over 14%. 14.2% down by about just $66 almost. So, not as much of a drop as Seagate, but it is priced lower. It's a lower price stock, but when it got to the low point here, it was down below down to about 396 today. So, both of these stocks, in my opinion, wild overreaction to this news from Toshiba. And let me show you what what the Barons article said and ultimately what what Jordan Klein said about this as well. It says, "Sate stock and Western Digital tumble. Investors worry the hard drive shortage will ease." So, as we go through some of these, I'll just set it up. It said, "The two biggest beneficiaries of the artificial intelligence boom got a reality check today, and it may present an opportunity for patient investors." So shares of hard disk drive, Western Digital and Seagate, they fell sharply on a report that the J their Japanese rival Toshiba plans to double its production capacity for AI data centers in 2027. Now, as I mentioned, it says Toshiba plans to invest 380 million to add capacity to its production production facility. The company is trying to grow its market share from 10% to 30%. And I love this line that I'm going to get to in a moment that Jordan Klein says, but you can as I go further, it says the AI AI requires plenty of storage. So data center operators, they probably actually would welcome more capacity in the marketplace. Um, and Toshiba's big move isn't a death a death keel for HD trade just yet. There are several uncertain steps between the uh the report and Western Digital and Seagate losing market share are seeking uh are seeing prices weaken in the market. To start, Toshiba remains by far the smallest of the three HDD producers. Analysts expect Seagate and Western Digital to make a combined 1.7 billion in cap capital expenditures in 2027, which ends actually next June for them. their fiscal year 2027 ends about mid year of our calendar year. And so a $380 million essentially nothing to this market. It's not gonna it's not going to move at all. It's not going to affect the demand at all. And so it will not be enough likely to triple Toshiba's market share as they said. As I said, it is an ambitious plan. But look what what Jordan Klein says. He said, "I want to play for the New York Yankees, but doesn't mean that's going to happen." So you could say whatever you want in the marketplace. You can be in as ambition ambitious as you want and as bold as you want. But can you actually make it happen in the marketplace and I highly doubt it and I think Jordan Klein doubts it as well. If Toshiba's investment does manage to meaningfully increase supply prices will not collapse right away either. Both Western Digital and Seagate have price have increased prices more cautiously than the DRAM players like Micron they say. So that so that has a limited margin expansion in the short term, but it also means less downside if supply catches up to demand. And similar to the memory names, Western Digital and Seagate, they have prioritized these long-term agreements and they've locked in pricing terms that give them clarity about long-term demand. New capacity from Toshiba may give customers more leverage in these negotiations, but it won't have a significant substantial impact on deals until 2028. Klein says his initial take is to buy the news. Now, he does say, but I would wait. No immediate no immediate rush as this news while while it's still while it hasn't been confirmed yet, it may linger, he says. So they actually may see the prices come down for these stocks even a bit more. But I think his initial takeaway is the same as mine that this is a a buy signal. If these stocks move down further based off of this headline from Toshiba with a drop in the bucket of $380 million that's not going to dent demand at all. It's not going to add any supply glut at all. I think Western Digital and Seagate are still sitting in the cat bird seat. They have absolutely they they dominate this marketplace with a 90% share. They have long-term contracts in place. They're well ahead from a technological perspective over Toshiba. So, I just don't see any reason why this has an So, Jordan Klein goes on to say like we're you can say 30% if you want, but the reality is your investment is not going to get you to that level. You're not going to certainly do it in a year. You're going to have to ramp up capacity significantly longer than that. And even this doubling your capacity with 380 million won't reach till the end of 2027. So I think this is an overreaction guys. If you're an investor in Western Digital and Seagate, I would just let the news pass. I believe the stocks will recover just like we saw with the memory stocks, just like we saw with Micron earlier this year with a number of different headlines and road bumps that we've had to manage throughout the year. So that's my take on it right now. But as I mentioned, that's not the only news that kind of caught my eyes my eye today. There was a another story that dropped today in the Wall Street Journal. Let me pull it up. But first, let me just show you. Before I do that, let's just take a look at how Micron performed. You can see Micron was down by about 2% today. It was off $22 in the after hours another half a percent. So, we're trading right now. And if I refresh that, we're trading in the after hours about,6915. So, not the Friday that I was expecting. We actually did, you can see on the right here, we broke the $1,100 mark. We got up to 11:08. It just didn't hold it. It got pushed down. It got there was some profit taking. Other things just kind of pushed it back down. Here's that resistance again. That 1100 mark is the resistance for the stock right now. We need to see if we can push through it next week with the all of the positive news that we've had for this stock. But this is the story that caught my eye today. You can see it in the Wall Street Journal. just a very small piece. As European chip stocks rally after reports, Samsung ups prices. So, what it calls out here is that Samsung is increasing prices for its memory chips. Samsung is quoting prices around $4 per gigabit in negotiations with customers for HBM4 memory chips. In 2027 negotiations, it is three times ahead of its current rates, which would be HBM 3E. So that is a massive kind of I think uh just tailwind overall for the sector. I think when you see Samsung reportedly opening up their 2027 HBM4 price ne price negotiation with major customers at a mid to high $4 gigabit range. And to put that in perspective guys just remember that the current HBM3 prices is about a$150 per gigabit. They're going towards $4 per gigabit in 2027. That is a 3x over where we see HBM 3e today to where we see HBM3e prices today. And the reason that HBM4 is commanding this kind of premium comes down to the architecture. We know that HBM4 it doubles the interface bandwidth from a from a,024 to48 bits and it drops the traditional passive memorybased die in favor of an advanced logicbased die. It requires complex 3D packaging, higher wafer consumption per gigabit, and customized foundry integration. This isn't standard DRAM anymore. HBM4 is moving memory much closer to the economics and complexity of custom silicon. But what does it mean for the big three memory companies overall? That's the piece that I want to talk about because when we think about Micron, you have to remember in their earnings call, their Micron management team made a statement that many Wall Street analysts probably just glossed over. Maybe all of us just glossed over it as well. They stated that Micron's 2027 HBM pricing, the frameworks for them were locked in at a substantially higher prices with over 75% of their total capacity already booked under binding agreements. And let me show you the article that dropped in on Digi Times that actually that that proves that statement. You can see Micron hikes 2027 HBM prices after missing 2026 memory surge on fixed contracts. If you go through it says Micron has sharply raised their 2027 prices for high bandwidth memory, the stack VRM package with AI accelerators. The increase comes after a year in which fixed contract prices left HBM largely outside of the memory price surge. So what their CEO said on the call, he said that most HBM volume is already sold and the prices are much higher than 2026 prices. And if I scroll down, you can see he specifically calls it out more around their contract. So 2027 contracts reset the price for Micron's HBM product. So Micron said it has signed contracts covering the vast majority of its calendar 2027 HBM supply with significant price increases year-over-year. The new prices take effect in calendar year 2027. Micron was explicit about the goal. They want to narrow the gross margin gap with conventional DRAM. It said narrowing, not closing the gap because HBM will still earn less than conventional DRAM next year even at these higher prices. And guys, that's a whole different article. We talked about that a whole different statement. It's just showing you that HBM is not even compet the economics of HBM are not competing with the economics conventional DRAM because of the agentic push and the demand that we have on those products that DDR5 products particularly in the market. So that's also a great sign for Micron. But I think when you think about in general when when we see a story that Samsung is opening their negotiations at a higher rate at a $4 per gigabit, it provides an immediate external validation that Micron's earnings call and the guidance it wasn't just corporate optimism. It is a reality of the contract negotiations and that directly challenges one version of the bear case because we know that bears have been concerned that Sam Samsung would regain HBM share primarily through aggressive price discounting and that's not the case from what we're seeing right now in the Wall Street Journal article. And I think if we take a look at the other two, if we think about SKH Heinix, SKH as you know is the market leader in this space. This news today for Samsung is also equally constructive and positive for SKH Heinix because a big headwind that SKHinix was facing was that Samsung would aggressively price discount to win back market share within the HBM4 market. But today's pricing leak in the Wall Street Journal shows that Samsung is actually doing the exact opposite. They are attempting to monetize the scarcity at the top end of the market. Even if SKHix loses a few percentage points of market share to Samsung, the total dollar profit pool for HBM4 expands so fast that SKHik's net margins remain extraordinarily protected. And for Samsung, this signal marks their transition from qualification to volume and now aggressive monetization in within the HBM4 market. Samsung estimates that HBM will consume nearly 30% of total industry DRAM wafer capacity by 2027. By pricing HBM 4 at nearly 3x the premium that we see with HBM 3E today, Samsung is ensuring that the massive wafer reallocation away from conventional DRAM generates maximum operational leverage for the company. And this is why HBM4 pricing matters to Micron investors even beyond the HBM itself because remember that secondary effect a as more DRAM wafers are dedicated to building complex 3D HBM stacks conventional server DD uh conventional server DRAM sorry becomes even scarcer in the market and it's going to drive up pricing across DDR5 modules as well. and let's look at what companies potentially are positioned to benefit or or or serve as a second order connection to these updates that we see in the market. I want to pull up a couple companies that I think could be beneficiaries of both the news that we saw today, whether that's the HDD capacity or the H or the uh high bandwidth for pricing. So, you can see on the screen from left to right, I'll start with the the big winner again, second order winner. Obviously, I think Western Digital and Seagate will win here, but Marll Marll has an opportunity to win with this expansion that we see, the capital expenditure and the growth for the HDD marketplace because more HDD units drive higher demand for Marll's controllers and preamplifiers. If I look at the second order winners for HBM4, I've called them out before. It is clearly applied materials, lamb research, KLA, they are all in position to win just because of the memory equipment, the etch and deposition and the process control and inspection that is needed for that product as we move forward. I also think Broadcom could be a second order winner here because more storage and memory capacity drives higher demand for networking PCIe switch and custom silicon solutions and that is right in Broadcom's wheelhouse. So I think those companies serve to be kind of a second order winner with the stories that we saw today. But when we put the entire picture today guys, I think the tape tells us something unique. It tape is ultimately gave us two completely different signals from the same AI infrastructure boom in the HDD space. The shortage is finally attracting meaningful meaningful new capacity. Although I don't think Toshiba's capacity is going to make a dent, but it is starting to attract more investment and more capacity. On the HBM side, the shortage is still attracting dramat dramatically higher reported negotiated prices. So, same AI buildout, same explosion in data, two different points in the supply response. And that's exactly why we as investors, we just can't follow demand. We have to follow the bottleneck in the market. Guys, I hope you enjoyed the video tonight. Let me know your thoughts below. And if you found this breakdown valuable, make sure you hit like and make sure you subscribe to Market Signal.