Why Western Digital Rose Over 6.5% on Friday


Jul. 1 2019, Published 7:39 a.m. ET

WDC stock returns

Western Digital (WDC) gained 6.7% on Friday, June 28, 2019, to close trading at $47.55 per share. The stock rose on news that a power outage at one of Western Digital’s manufacturing facilities in Japan might impact production. Investors were happy about this news, as there is already an oversupply of memory chips.

How will this power outage impact the total oversupply, and will it also drastically reduce WDC’s inventory levels? According to a J.P. Morgan (JPM) analyst, this outage will impact the production of flash wafer chips by 6 exabytes (which is 600 billion gigabytes). These chips were expected to be shipped in the fourth quarter of 2019. Analysts do not expect this outage to impact chip prices going forward.

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Micron results

Western Digital stock gained close to 19.0% in the last week, one of the best weeks for WDC investors. Several semiconductor stocks including WDC gained significant momentum after Micron’s impressive quarterly results. Micron (MU) stated that it would reduce capital expenditure to account for the oversupply of memory chip inventories.

Close watch on the G20 summit

Semiconductor stocks will likely be impacted by the outcome of the G20 summit. Several semiconductor stocks have exposure to China and have been impacted by the ongoing trade war between the US and China. The Huawei ban has also driven revenue estimates for some companies lower.

Now, President Trump will be meeting with his Chinese counterpart to discuss the Huawei ban as well as tariff regulations. If the outcome is favorable, these stocks should move higher. The tariff war might also come to an end, as two of the most powerful world leaders have agreed to resume talks. Trump also has agreed to allow companies to sell components to Huawei, which will likely lead to a rally in tech stocks today.

Wall Street analysts have a 12-month average price target of $51.60 for WDC, which indicates that the stock has an upside potential of 8.5% from its current price. WDC revenue will continue to decline in fiscal 2019 and 2020. Its earnings per share will likely also fall significantly in the next two years. There remain many uncertainties for WDC investors, both on an industry level as well as at the global level.


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