HDD Preview: Recent Pullback Creates Positive Setup into F1Q27 as Industry Trends Stay Intact; Favor STX vs. WDC

Ahead of the F1Q27 (September-end) earnings season, J.P. Morgan views near-term EB, pricing and margin trends as broadly supportive of upside, while investor focus shifts to the durability of supply discipline amid reports of Toshiba adding capacity and potentially acquiring TDK's HDD head business. HDD shares have underperformed since the end of summer (average -25% vs. -6% for Hardware & Networking and 0% for the S&P 500), which the analysts see as a positive setup: continued price increases drive revenue-per-exabyte upside alongside declines in COGS-per-exabyte, supporting gross margin progression for both companies, with LTAs extending visibility into CY28 and beyond. Reflecting greater scrutiny on AI spending and HDD-specific capacity risk, the target multiple is cut to the mid-teens from the high-teens. Seagate is favored given its HAMR leadership, with F1Q27 revenue of $4.2bn and EPS of $7.58 above consensus;