We recently compiled a list of the 15 Best Hardware Stocks According to Hedge Funds. In this article, we are going to take a look at where Western Digital Corporation (NASDAQ:WDC) stands against the other hardware stocks.
With the first half of 2024 nearly over, artificial intelligence continues to play a dominant role in the stock market. Stocks that either design semiconductors that are used for AI applications, or those that use them to either streamline their internal operations such as coding or offer products to customers have also made significant gains. These show the optimism in Wall Street for accelerated computing technologies, which are collectively called artificial intelligence.
In fact, the impact of AI has been so strong that not only has it upended the status quo of the most valuable firms in terms of market capitalization, but it also allowed some of the top AI companies to post triple digit percentage share price returns over the course of the past twelve months. Some of the top performing AI stocks are up by 213% over the past twelve months and have appreciated by 773% since November 2022. Back then, the stock market was whimpering in the aftermath of rapid interest rate hikes by the Federal Reserve, which had hit technology stocks particularly hard since they benefit from a fast growth and low rate environment.
However, AI’s impact on the stock market has fueled the triple digit percentage gains in some stocks since then. At the same time, it has also meant that major indexes continue to demonstrate robust performance that is fueled by the share price performance of mega cap technology stocks.
In 2024, the market has moved forward from investing in AI companies that can change the world with their hardware or software to evaluating whether these firms are delivering. The first quarter of the 2024 earnings season was the clearest example of this phenomenon, and it saw Wall Street take an unforgiving approach to large and small firms that presented even the slightest hint of being unable to either grow their revenues by targeting AI or control the costs of investing in the new technologies.
Within the AI industry, there are different categories of firms. Most of these, such as OpenAI, operate on the software side. This industry subsegment develops applications such as chat bots and other assistants along with expanding the use of AI to existing software such as image editing tools. AI hardware companies power these applications, and when compared to the software firms, not only do they command stable valuations, but they also see investors take comfort in the fact that the demand for their products is far more stable and predictable when compared to software demand. Recently Goldman Sachs published a bullish report on hardware stocks due to AI, which we covered in 15 Best Hardware Stocks According To Goldman. In this article we are going to approach the same theme from a different angle and there are vast differences between both rankings of hardware stocks.
Our Methodology
To make our list of the top hedge fund hardware stock picks, we ranked personal computing, semiconductor, and computer hardware by the number of hedge funds that had bought the shares in Q1 2024. Out of these, the stocks with the highest number of hedge fund investors were selected. Basically our article listed the best hardware stocks to buy according to the 900+ equity hedge funds tracked by Insider Monkey. Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A data center filled with racks of hard disk drives and solid state drives.
Western Digital Corporation (NASDAQ:WDC)
Number of Hedge Fund Shareholders In Q1 2024: 65
Western Digital Corporation (NASDAQ:WDC) makes and sells hardware products that are used to store data. These include solid state and hard disk drives. The firm has been performing well on the earnings front lately, as it has beaten adjusted analyst EPS estimates in all four of its latest quarters. Western Digital Corporation (NASDAQ:WDC) also expanded its AI portfolio in June 2024 when it revealed three new SSD and HDD products optimized for AI performance. Mizuho was out with a bullish note for the firm in May 2024, when it increased Western Digital Corporation (NASDAQ:WDC)’s share price target to $90 from $80 and kept a Buy rating on the shares. Explaining its decision, the research firm shared that the company’s decision to spin off its NAND business could end up accreting value.
By Q1 2024 end, 65 hedge funds part of Insider Monkey’s database had bought a stake in Western Digital Corporation (NASDAQ:WDC). Ken Griffin’s Citadel Investment Group owned the most valuable stake which was worth $395 million.
Western Digital Corporation (NASDAQ:WDC)’s forward price to earnings ratio of 12.6 is lower than that of the S&P 500’s 21. CEO David Goeckeler commented on the business spinoff during Western Digital Corporation (NASDAQ:WDC)’s latest earnings call as he outlined:
Before I dive further into the demand environment, I want to briefly comment on the status of the separation of our flash and HDD businesses. I am proud of the team’s ongoing efforts as we drive towards completion of the separation in the second half of the calendar year. We remain focused on achieving the separation as soon as possible, and we’ll continue to provide further updates on our progress as appropriate. Moving on to end market commentary. I am pleased to report that during the quarter, revenue in all of our major end markets returned to year-over-year growth. In cloud, we experienced 29% growth in revenue from a year ago, highlighting the incredible success of our industry-leading HDD product line. In addition, we began to experience an increase in demand for our flash-based solutions, signaling a long-awaited recovery in this end market.
Overall WDC ranks 15th on our list of the best hardware stocks to buy. You can visit 15 Best Hardware Stocks According to Hedge Funds to see the other hardware stocks that are on hedge funds’ radar. While we acknowledge the potential of WDC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WDC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.