12:29 PM EDT, 08/01/2024 (MT Newswires) -- Western Digital ( WDC ) has a pattern of conservative guidance followed by significant upside in actual earnings, which in turn is often overshadowed by new guidance, Morgan Stanley said in a note Thursday.

"But none of that changes the fact that numbers are moving up materially over time, and that we are set up for a strong multiyear earnings cycle in both businesses, with the coming separation of hard disk drives and memory further unlocking that value," the firm added.

Strong demand for hard drive arrays in artificial intelligence server clusters, favorable pricing conditions and gross margins of 36% suggest the company might exceed its guidance for the September quarter, according to the note.

NAND capital expenditures remain low, potentially reducing supply growth and pushing peak earnings through 2026, while the enterprise SSD segment with expected higher margins is projected to grow significantly and contribute positively to earnings, the firm said.

Morgan Stanley increased price target on Western Digital ( WDC ) to $94 from $86 with an overweight rating. Shares were down nearly 11% in recent trading.

Price: 59.92, Change: -7.14, Percent Change: -10.64