The thesis

Western Digital designs and manufactures data storage devices, benefiting from the AI buildout trend. The company's 43.8% year-over-year revenue growth and 18.6x P/E ratio indicate strong market momentum. With a medium conviction score of 35, the analyst consensus rating is buy, driven by the company's exposure to semiconductors and AI compute. The company's gross margin of 48.85% and net margin of 7.295% suggest a profitable business model.

Why now

The US-China AI war and the resulting AI buildout create a favorable macro environment for Western Digital, with AI capital expenditure growth driving demand for the company's products. The current macro moment, with a 20% driver from AI capex growth, makes this the right time to focus on the company.

What to watch

The company's revenue growth and gross margin over the next two quarters will be key indicators of the thesis's validity, with a focus on the impact of AI buildout on demand. The development of the US-China AI war and its effect on the global tech landscape will also be crucial in determining the company's future prospects.

Key risks

The key risk to the thesis is the commodity cycle nature of the memory market, which can lead to oversupply and pricing collapses. Additionally, the company's reliance on sustained hyperscaler AI capital expenditure poses a risk if demand falters. The valuation risk, with a DCF intrinsic value of $51, is also a consideration.

Theme exposure