We recently compiled a list of the 7 Best Computer Hardware Stocks to Buy. In this article, we are going to take a look at Western Digital Corporation (NASDAQ:WDC) against the other computer hardware stocks.

According to a report by Research and Markets, the computer hardware market is projected to grow from $674.44 billion in 2023 to $710.32 billion in 2024, with a 5.3% compound annual growth rate (CAGR), mainly driven by personal computing, global supply chains, internet expansion, and more data centers.

By 2028, the market is expected to reach $914.55 billion at a 6.5% CAGR, fueled by trends like remote work infrastructure, sustainable practices, smart city development, and digital transformation. Key trends include edge computing, AI integration, modular systems, biometric security, and hybrid cloud environments, with significant investments in smart city projects, particularly in China.

The most important trends in the advancement of computer hardware are AI and machine learning which are revolutionizing hardware design and enabling applications like autonomous vehicles and robotics. Apart from that, the Internet of Things (IoT) is expanding, connecting more devices in smart homes, cities, and industries. It has led to a focus on improving security, efficiency, and the ability of different IoT devices, systems, and technologies to work together seamlessly.

Role of AI in the Growth of the Computer Hardware Industry

On May 28, Michael Fertik, founder of Heroic Ventures, joined CNBC’s ‘Squawk Box’ and said that we’re still in a phase of AI development where hardware is crucial. Companies like NVIDIA are thriving because their products are essential for running large AI models, which require immense computational power. He said that this situation is similar to how search engines, like Google or Bing, have long relied on substantial investments in hardware to function effectively.

Fertik added that as AI technology evolves, there will be a shift. The costs associated with AI hardware will decrease, and smaller, more specialized AI models will emerge, which will be tailored for specific industries or purposes.

When this happens, the focus and financial gains will also move toward software and computer science (software testing and development) companies. However, they will not significantly move from computer hardware companies and they will still benefit from the growing AI industry.

Industry Has Room for Growth Beyond AI

A major growth prospect for computer hardware is quantum computing, an industry that is expected to reach $11.4 billion by 2027 from $2.74 billion in 2022, according to Research and Markets. Quantum Computing offers significant benefits by improving the speed and efficiency of complex computations.

Unlike classical computers, which process bits as 0s or 1s, quantum computers use qubits that can represent multiple states at once, which enables them to solve problems much faster. This is especially valuable in fields like cryptography, drug discovery, financial modeling, and optimization as it solves complex simulations and calculations that are currently infeasible for classical computers.

Quantum Computing can significantly benefit the computer hardware industry by driving advancements in technology and creating new markets. Similar to AI, the development of quantum hardware requires innovations in materials science, cooling systems, and chip design, which can push the boundaries of traditional hardware engineering.

As quantum computers become more practical, they will require specialized hardware components, which will create new opportunities for companies to develop and supply these advanced technologies. For more details, you can read our article about the 12 Best Quantum Computing Stocks To Invest In.

Our Methodology

For this article, we used stock screeners and other financial media websites to identify 12 computer hardware companies with market capitalizations of above $1 billion. The analyst comments and ratings were mostly taken from The Fly and TipRanks.

Western Digital Corporation (NASDAQ:WDC)

Stock Price as of August 9: $59.68

Average Analyst Price Target Upside as of August 9: 54.16%

Western Digital Corporation (NASDAQ:WDC) is a California-based prominent American data storage company that has established itself as a major player in the storage sector. The company specializes in manufacturing, producing, and selling a range of vital data storage products, with a primary focus on HDDs and solid-state drives (SSDs).

Its extensive product lineup features HDDs designed for personal computers, laptops, and enterprise storage systems, which are marketed under the Western Digital and WD brands. Additionally, the company offers high-performance SSDs known for their speed and reliability, serving both consumer and business markets under the SanDisk brand.

It also manufactures embedded storage solutions tailored for automotive and industrial applications, as well as memory components for smartphones and other electronic devices. The company caters to different types of customers, including original equipment manufacturers, distributors, and individual consumers worldwide.

Western Digital (NASDAQ:WDC) is demonstrating strong performance and growth potential. The company’s recent financial results show a significant upward trajectory, with revenue surging by 41% year-over-year to $3.76 billion for the fourth quarter. This exceeded expectations, driven by robust sales in Nearline HDDs and Enterprise SSDs, and higher average selling prices.

The company’s success is particularly notable in the cloud segment, which saw an impressive 89% increase year-over-year, and contributed to half of the total revenue. This growth is a result of increased shipments and prices for nearline HDDs and enterprise SSDs, combined with favorable conditions in the memory market.

Analysts are optimistic about Western Digital’s (NASDAQ:WDC) prospects. On August 1, Benchmark analyst Mark Miller raised the price target on the stock to $92 from $85 and maintained a Buy rating. This adjustment reflects confidence in continued strong performance driven by robust sales in key segments.

Similarly, on July 12, Citi raised the price target on the stock to $95 from $90 and kept a Buy rating on the shares. It also initiated a “90-day positive catalyst watch” on the shares. Citi’s optimism is rooted in the expectation of improvements in the storage media industry, following a period of adjustments including capex cuts and workforce reductions.

The return of strong demand from hyperscalers and a capacity-constrained industry are expected to support further margin and profitability gains for the company. Furthermore, the firm showed confidence in strong NAND pricing and under-shipment to demand to possibly boost the company’s flash gross margin.

In addition to revenue growth, Western Digital (NASDAQ:WDC) has shown improvements in profitability. The company’s NAND blended average selling prices (ASPs) rose by 14% sequentially, contributing to an increase in pro forma gross margins to 36.3% in the fourth quarter. This is up significantly from the previous quarter and the same period last year and shows improved efficiency and a favorable pricing environment. Western Digital’s (NASDAQ:WDC) strong performance across key segments, positive industry trends, and improving margins present a good case for its stock. With a solid foundation and promising growth indicators, the company is possibly well-positioned for continued success.

Lastly, according to the 27 analysts that have covered the stock, its average price target of 54.16% represents an upside of 54.16% from the present levels, as of August 9. It is among our best computer hardware stocks to buy now.

Overall WDC ranks 2nd on our list of the best computer hardware stocks. 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.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.