Hard Disk Drives: Post-Toshiba News, Our HDD Checks Leave Us More Bullish, Not Less

Following the Friday Nikkei report on Toshiba, we spent the weekend speaking to HDD industry contacts. Our checks clarified that Toshiba's capacity expansion was overstated, the timeline to said expansion is aggressive, the 30% market share target is an aged "pipe dream", and most importantly that STX/WDC are not intending to respond with any incremental expansions of their own and pricing is not a lever being pulled to help Toshiba gain share. We'd be aggressive buyers of STX and WDC as Friday's news created an opportunity, not a change in thesis. Our checks unearthed two quite bullish industry data points: (1) HDD demand has accelerated over the last 1-2 months with new customers (neoclouds, physical AI) and agentic workloads emerging as incremental upside demand drivers, and (2) customers not currently under contract are paying 3-5c/GB for allocations in C3Q. We strongly reiterate our OW ratings on STX and WDC, and reaffirm STX as our 'Top Pick'.