We recently published a list of 10 Worst 5G Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Western Digital Corporation (NASDAQ:WDC) stands against other worst 5G stocks to buy according to short sellers.
As we move a quarter of the way into the 21st century, the world is paving the way for new technologies to make human lives easier and more advanced. Out of those, 5G and artificial intelligence (AI) are two of the century’s most important innovations.
We discussed the correlation between the two of them in our article about the best 5g stocks to buy according to short sellers. Here is an excerpt from the article:
“In a CNBC interview at the Mobile World Congress Shanghai on June 26, director-general of the GSM Association, Mats Granryd highlighted the deep connection between 5G and AI and suggested that their mutual rise is not accidental. He said that “AI feeds off 5G and 5G feeds off AI.” This is especially evident in China, where the development of standalone 5G networks is well advanced and discussions are already shifting toward 5G Advanced (5.5G). While some countries lag, like the Philippines, Mats pointed out that this dynamic between 5G and AI is most prominent in regions with widespread 5G coverage…
…Mats believes that 5G will follow a similar path to become a common platform worldwide, which will also extend to AI. While some regions may advance faster than others initially, he showed confidence in the fact that everyone will eventually catch up and benefit from the integration of AI with 5G.”
The Outlook For 5G Industry
We also previously discussed the Market Research Future report which expects the 5G market to reach $229.41 billion by 2032, growing at a compound annual growth rate (CAGR) of 40.60% between 2024 and 2032.
According to a 5G Americas report, the wireless telecommunications sector continued to expand in the first quarter of 2024, driven by the widespread growth of 5G technology. Global 5G connections reached nearly two billion. North America’s leading adoption accounted for 32% of all 5G connections and added 22 million new connections, totaling 220 million. Latin America also experienced growth, with 8 million new LTE connections and 9 million 5G connections.
For the future, the 5G Americas forecast suggests that global 5G connections will reach 7.7 billion by 2028, with North America projected to have 700 million. The Internet of Things (IoT) is expected to further drive 5G adoption, with global IoT subscriptions expected to grow from 3.3 billion to 5 billion by 2028.
The Evolution of Mobile Networks with 5G Advanced and 6G
According to a March report by CNBC, telecom executives discussed plans for 5.5G or 5G Advanced at the Mobile World Congress in Barcelona, even as 5G is still being rolled out. The new stage of mobile technology is expected to enable advanced applications like mixed reality headsets, autonomous vehicles, and smart factories, which were initially promised with 5G.
The 5.5G technology will improve network capabilities by increasing data speeds and enhancing connectivity. It will also use AI to optimize networks and reduce power consumption. Huawei expects that 5.5G will begin commercial deployments by 2024, with the potential for much faster download speeds. The focus now is on improving 5G’s commercial relevance and paving the way for 6G in the future.
Moreover, a team of scientists, led by Professor Withawat Withayachumnankul from the University of Adelaide, has created a new polarisation multiplexer that could greatly improve 6G communications. The device works at terahertz frequencies, which are much faster than current wireless systems. It can send multiple data streams at the same time over the same frequency, effectively doubling the data capacity.
The multiplexer is built on a silicon base and has been successfully tested and reduces data loss compared to existing technology. The innovation could lead to faster, more reliable wireless networks and would benefit areas like telecommunications, video streaming, and future 6G mobile networks. The team expects it to drive more research and become available in commercial products within the next decade.
Our Methodology
To select the 10 worst 5G stocks according to short sellers, we used ETFs and screeners to identify over 40 stocks that have significant involvement in the 5G industry. Next, we narrowed our list to 10 stocks with the highest short interest. Finally, these stocks were ranked in ascending order of their short interest.
We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds. Why are we interested in the stocks that hedge funds pile into? 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)
Short Interest as % of Shares Outstanding: 5.08%
Number of Hedge Fund Holders: 80
Western Digital Corporation (NASDAQ:WDC), a major data storage company, is a key player in the storage industry, which is known for its broad range of essential data storage products. The company has carved out a significant role in the 5G landscape with its advanced storage solutions, which cater to the needs of 5G-enabled devices and applications.
A standout product in this area is the iNAND MC EU511 embedded flash drive (EFD), designed to meet the demanding performance standards of next-generation mobile devices that utilize 5G technology.
The company is focused on supporting 5G technology, which is clear from its engagement in developing high-performance edge storage solutions. As 5G networks promise faster speeds and lower latency, the need for high-capacity storage to manage the massive data generated by billions of Internet of Things (IoT) devices grows.
The company’s iNAND MC EU551 and EU311 models are designed to provide superior read and write speeds, which are necessary for data-heavy applications and strengthen its position in this rapidly evolving market.
At a stake value of over $4.057 billion, 80 hedge funds held positions in Western Digital (NASDAQ:WDC) in the second quarter. As of June 30, Millennium Management is the most significant shareholder in the company and has a position worth $379.707 million.
The company has faced several challenges that have impacted its financial performance. In the fourth quarter of fiscal 2024, it reported revenue of $3.76 billion, which shows a 9% sequential increase. Despite this growth, the company reported a non-GAAP loss per share of $1.72 for the fiscal year, which is possibly a sign of ongoing issues with profitability. It ranks 3rd on our list of the worst 5G stocks to buy according to short sellers.
The market response to the company’s financial performance has been mixed. On August 1, Summit Insights downgraded the stock from Buy to Hold as it noted that while there have been improvements in average selling prices and gross margins, profitability enhancements are still limited. Summit Insights also suggested that the storage and flash industry might be nearing the end of its recovery phase.
On September 10, Goldman Sachs maintained a Neutral rating with a $79 price target, following a presentation at the Communacopia & Technology conference where it was highlighted that enterprise SSD demand, driven by AI, remains strong and is expected to contribute significantly to the company’s NAND bits in the coming fiscal year.
Meanwhile, on the same day, Citi analyst Asiya Merchant lowered the price target from $95 to $85 but maintained a Buy rating, as they acknowledged the volatility in NAND fundamentals while remaining positive about the supply/demand dynamics.
Despite these hurdles, Western Digital (NASDAQ:WDC) has made significant progress in innovation. The company has introduced new high-capacity SSDs aimed at gaming and enterprise applications, and its strong foothold in the enterprise SSD market has driven revenue growth, particularly due to rising demand for cloud storage solutions.
The company projects first-quarter fiscal 2025 revenue between $4 billion and $4.2 billion, which signals a hopeful outlook for continued growth despite the current challenges. The management team remains dedicated to enhancing profitability while navigating a complex business environment.
Parnassus Investments stated the following regarding Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
Overall, WDC ranks 3rd on our list of 10 worst 5G stocks to buy according to short sellers. 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.