Morgan Stanley Projects Hard-Drive Supply Gap to Widen by 2027

Morgan Stanley projects the hard-drive supply shortfall will widen by 2027 and remain near that level in 2028, as demand from AI labs adds to pressure from cloud-service providers.

The projected gap rises from about 300 exabytes in 2026 to about 400 exabytes in 2027 and 2028. An exabyte is a unit of digital storage capacity. The estimates indicate that demand will outstrip available supply by a wider margin next year, without projecting another increase in the shortfall in 2028.

Nearline hard drives are changing hands on the spot market at 4 to 7 cents per gigabyte. Blended nearline contract prices are about 1.5 cents per gigabyte. The difference shows how much more buyers are paying in spot transactions than the average price under those contracts.

Demand now extends beyond core cloud-service providers to AI labs, while supply remains constrained. Prices for hard drives outside the nearline segment have also risen 15% to 30% in a sequential comparison. Together, those conditions underpin expectations for higher earnings at Seagate Technology (STX) and Western Digital (WDC).

Morgan Stanley estimates December-quarter earnings of $9.54 per share for Seagate, 12% above market consensus, and $5.25 per share for Western Digital, 10% above consensus. It maintained overweight ratings on both companies and selected Seagate as its top IT hardware pick.

Hard-drive makers trade at about eight times earnings. In Morgan Stanley’s valuation analysis, that multiple implies a cycle peaking in fiscal 2028 and an 80% decline in solid-state drive prices from calendar second-quarter 2026 levels. The decline is an assumption implied by the valuation. Morgan Stanley views the resulting valuation as too low relative to its outlook for demand and supply.

The outlook still depends on suppliers’ capacity decisions and funding for AI demand. Toshiba’s capacity for 2027 is already sold out, while media and equipment constraints limit its production. Whether other suppliers expand capacity or put margins ahead of market share remains a key question for the projected shortfall.