Western Digital stock has slumped and moved into a bear market, mirroring the performance of other top companies in the memory industry. WDX was trading at $410, down by 50% from its all-time high, with the market capitalization falling from $258 billion to the current $148 billion.
The ongoing sell-off has coincided with the sell-off in other memory stocks. SanDisk (SNDK) has dropped by over 31% from its peak, while Kioxia has fallen by 52%. DRAM, the ETF that tracks the biggest companies in the memory industry, has fallen by over 27% from its all-time high.
Western Digital stock price analysis
The daily chart shows that the WDC stock has been in a strong sell-off in the past few months. It has slumped from a high of $799.8 in June to the current $408.
A closer look at the chart shows that it has formed a descending triangle pattern. This pattern is made up of a horizontal support and a descending trendline. In most cases, this pattern usually leads to a strong bearish breakout, especially when the two lines are nearing their confluence.
The stock has already dropped below the 50-day moving average and the Supertrend indicator. Also, the Relative Strength Index (RSI) has moved below the neutral level of 50.
Therefore, the stock will likely continue falling as sellers target the key support level of $300. This view will be confirmed if the stock moves below the support level of $410.
WDC stock chart | Source: TradingView
Western Digital drops despite strong growth
WDC stock has been in a strong sell-off in the past few months despite its strong revenue growth. The most recent results showed that its revenue jumped by 44% to $3.7 billion. This growth happened as demand for storage jumped in the United States and other countries.
Western Digital’s gross margin rose to 54.4% from 50.5% in the previous quarter, with its operating income jumped by 126% to over $1.65 billion. The company expects that its revenue growth will continue in the foreseeable future.
Analysts tracking the company expect the first quarter revenue to come in at $4.13 billion, up by 47% from a year earlier. For the year, the revenue is expected to surge to $19.19 billion, followed by $26 billion next year. Based on the ongoing trends in the AI industry, chances are that its revenue will be higher than that.
Western Digital has also become highly undervalued, with the forward price-to-earnings ratio is 20, much lower than the five-year average of 35.
The risk, however, is that the company is in a highly cyclical industry. In most cases, the industry normally sees strong demand, which is then followed by a reversal. If this happens, there is a risk that its performance will reverse, especially if the AI bubble bursts, as Ray Dalio predicts.
The company has worked to reduce the cyclical risk. It has entered long-term contracts with some of the biggest companies in the industry. These contracts give investors better visibility on revenue and give WDC more pricing power, but pricing terms are still being finalized, and a slowdown in data center spending remains the key risk.
Analysts remain bullish on the company. Citigroup has a target of $740, while Morgan Stanley believes the shares will jump to $676. The average estimate among investors is that it will rise to $534, up by 30% from the current level.
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