Please ensure Javascript is enabled for purposes of website accessibility

Why Western Digital Stock Is Up 14% in 2 Days

By Rich Smith – Nov 1, 2018 at 5:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sometimes, bad news becomes good news if you are patient.

What happened

Shares of Western Digital (WDC 3.10%) stock closed 9.3% higher on Thursday, capping a two-day run that's seen the hard-drive and solid-state memory-maker gain 13.8% -- but it's the reason why that may surprise you:

Investment banker KeyBanc published a report on Wednesday advising that DRAM memory prices in October declined "4.7% month-over-month and [was] up 11% year-over-year." NAND prices are "down 10.4% month-over-month and down 52% year-over-year, with pricing now below mid-2016 levels," said the analyst in a note covered by TheFly.com.

Signposts pointing to SSD and HDD

Computer memory pricing is going one way this year  -- but could go the other way next year. Image source: Getty Images.

So what

But doesn't Western Digital make DRAM and NAND memory, you ask? And doesn't a decline in pricing of those products mean Western Digital stands to see lower revenue and weaker profits?

Well yes, it does, and yes, it does. But here's the thing: In its report, KeyBanc emphasized that the declines in "contract pricing" it's seeing are only "as expected." And while it's true that KeyBanc forecasts these "declines to accelerate in Q4 and Q1," it does not believe we will see "extreme price declines."

Now what

Moreover, if you can be patient, it's likely that prices will "stabilize" toward the back end of 2019. At that point, "strong demand tailwinds" should kick in for both DRAM and NAND, leading to at least a few more years of stronger pricing that will give Western Digital "plenty of opportunity to profit."

Investors today are proving the old adage true that "the market is forward-looking," looking past near-term weakness and buying Western Digital stock in hopes of longer-term growth.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Western Digital Stock Quote
Western Digital
WDC
$37.59 (3.10%) $1.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.