I have done so much DD on this play and I really want to share it with you guys since WSB is the reason I started investing over a year ago.
In this post I'm going to not talk about some kind of currency that can get this post removed. Hint: it crashed big time yesterday. You know the one.
There is a new kind of this currency that uses a lot of computer storage space. How much? Well – 7 EXABYTES and it's currently adding 1 exabyte every 3 days. I'm going to assume you know about this currency and if not you can look through my post history and see which subreddit I've posted to recently involving this particular one.
Topics of discussion:
Why WDC is going to moon in the next 2-12 weeks
If you are reading this on May 20th – you are early
WDC just came off one of their best earnings beats in recent memory. WDC was a beaten-down stock in 2018 after NAND (SSD memory) prices declined, and analysts thought that HDDs (spinning disk hard drives) were going the way of the dinosaur. WDC did see a big increase in data center sales and consumer devices (think external drives for work from home setups) during Covid, but analysts priced in declining sales in 2021 as covid restrictions begin to end. By all accounts, it looked like WDC had no future growth prospects and should be some kind of dividend-yielding boomer stock. WDC reported earnings in April for the quarter ended March 31 – with revenues down only 1% compared to the 20% that analysts expected. The EPS was way higher than expected – non-gaap was expected to be around 0.68, and WDC delivered 1.02. The analysts are already wrong and they don't know what else is coming: The new currency thing that I won't name. They didn't even mention it in the earnings call. None of the investors on the line in the Q&A even asked about it. It's totally under the radar. In the next quarter, WDC is going to deliver their biggest earnings beat ever, and they are going to raise their revenue guidance for the rest of the year as a result, possibly by a gigantic, unheard of margin due to the new demand caused by the currency. When this happens, this stock is going to test its ATHs at around $110 per share but I would not be surprised to see a new ATH far above anything in the past. This stock can double, and it's going to happen AT THE LATEST during WDC's next earnings call. This is expected first week of August.
WDC is an American company, they have been publicly traded since 1973 and they have been part of the S&P 500 index since 2009. This is a solid company – we are not betting on dog shit turning to gold, we are betting on gold turning to diamond. WDC has like 64k employees, and is vertically integrated in HDDs and SDDs thanks to a long road of acquisitions like SanDisk in 2016. They own their own supply chain, so they can make bigger margins in the event of the inevitable price increases reminiscent of the GPU market thanks to another currency.
WDC is close to fairly valued at the moment at about $70 per share. They saw some spikes to 75+ recently after earnings but it keeps selling off due to WDC suspending their dividend and boomers wanting out, plus S&P indexes falling and selling off here and there. Suspending the dividend is MAJOR good news. This company has been stagnant for a while, but they are ready to expand. They want to be a growth company again, and they are going to get it when they realize increased HDD and SSD demand is here to stay.
The new reality is not priced in: WDC's TAM market just increased 50% and nobody knows about it
An industry expert at Forbes, Tom Coughlin, has estimated that WDC shipped 125 exabytes of HDD storage for Q1 2021. Next quarter, they are expected to ship around the same amount. WDC says there is seasonality but I really don't see it in the numbers. WDC owns somewhere about 35-40% of the HDD market, and around 17% of the SSD market.
The new currency is currently at 7 exabytes and consumes around 300+ petabytes daily at this point. Even after yesterday's events, the profitability is so high that even if it loses 50% of it's value, it's still worth buying HDDs over MSRP. Farmers can buy HDDs at $50 per TB (double the msrp market rate before the rise) and break even in 1 month. This is unheard of in the space. That's how profitable this is. While it's hard to farm solo if you are a small time farmer, it's worth it for the whales and the whales will eat HDDs until a 8TB drive goes for $400. WDC and Seagate are selling every drive they they can possibly make. If we apply WDC's market share to the current size of the network, we are looking at, conservatively, 2.5 exabytes of extra sales that is not expected or accounted for.
Let's look at it another way – with 125 exabytes shipped in Q1, 90 days, that means WDC ships 1.38 exabytes daily. Half of this goes to datacenter clients in long-term contracts, so say 700 petabytes daily. If the new currency is growing at 300 petabytes daily, and 40% of those drives are WDC, that's an extra 17% more demand than anyone so far knows about. If that doesn't seem like a lot, it's because it's massively understated and not nearly as high as it is in reality.
The network space is a lagging indicator. People buy hard drives ahead of time, and fill them with plots over time. Plotting speed is the bottleneck. Behind that 7 exabytes of networks space is likely 7 exabytes empty space already purchased, waiting to be consumed, or even more. And its not only farmers buying drives – scalpers are buying drives to scalp the farmers too. Go look on amazon and tell me how many drives you see in stock that are bigger than 6 TB. They are sold out. Supply is also a bottleneck – the new currency would grow even faster if they could buy even more storage. For all intents and purposes, that 700 petabytes of storage provided to consumers daily is almost all consumed by currency farmers. If they could deliver double the storage to consumers, at 1.4 exabytes per day, they would probably still sell all of them.
But wait – there's more.
WDC also makes SSDs, and Seagate does not (Seagate has 0.2% marketshare of SSDs). I didn't think the new currency would have much affect on the SSD market since the are needed in far smaller quantities than HDDs, and the go-to has mostly been enterprise drives by Intel and Samsung rather than WDC. But I was wrong. Just this morning, I was making my rounds on Amazon and noticed that WD SN750s 1TBs are almost out of stock, there are only 2 available. SN750 2TBs are out of stock. SN 850s are sold out. I'll go into why this is significant.
A company called Phison makes SSD controllers. They recently said they are raising their prices 10% due to supply constraints as the new currency has driven up SSD demand. This is a big indicator that the SSD demand is actually super high. You know those SN drives I talked about earlier almost being out of stock? Yeah, WDC makes their own controllers for those. They don't need Phison. If other manufacturers have to buy more expensive controllers, WDC can just raise their prices and make that profit themselves. SSD demand is certainly less than HDD and it's lagging behind HDD, but an NVME SSD drive shortage could be right around the corner. The new currency is very intensive on the SSDs and they are destroyed quickly, so buying NVMEs are not one-time purchases, they are like the gas the fuels the car. They will need to be purchased as more and more HDDs are purchased continually.
Nobody likes bears so I will address the risks quickly. The obvious risk is that the new currency is over priced and will either die out completely or crash to the point people will stop buying HDDs and the demand will only be a momentary spike in the rear view. I strongly do not believe this is the case and I think yesterday is a good test that shows that even under extreme pressure, the new currency is well positioned and strong. It's not going to 0 because of a market crash. I can go far into detail into why I believe this new currency is here to stay, and the demand will persist for potentially years, but I would have to say enough words that I think this post will just be removed.
The second risk is that NAND flash memory continues to decline in price. Since the pandemic the price has gone up, as datacenters are forced to expand, but I think the effects of the pandemic are not going to end any time soon and in fact that there will be no return to normal at all. I believe work from home is just going to be part of the future regardless of covid, which means more network and more servers and more data is going to be needed. I think the analyst expectation that revenue would collapse in 2021 as the pandemic ends and being surprised that it at least remained flat is going to be wind in WDC's sails even apart from the new currency's affects.
The third risk is management not dealing with the new currency demand well. If they are really bearish on the currency, they may not raise supply enough to capitalize on the increased demand. They may think the demand is temporary and they will be left with oversupply if they ramp now. David Goeckeler became CEO of WDC last year and he's got a background in tech of course, but more specifically in Cisco. He is known for transformational leadership and I think that shows with his decision to suspend the WDC dividend. If he is looking to transform WDC, I think this is the perfect opportunity for him.
HDD demand has sold out everything there is to sell out. Price increases are imminent, and SSDs could follow soon. All of this is due to a new currency that uses HDDs and SSDs, which is currently so profitable that whales will continue to buy them even at 30, 50 or 100% premiums. None of this was accounted for in WDC's most recent earnings call, and the price has not reacted to it yet. This thing is a ticking time bomb. WDC was already on track to a better than expected 2021 and this will launch it to interstellar space.
I believe that this trend is lasting all year and we are going to $150+. If you want to make a short term play and go balls deep I recommend July or October calls for 80-90c. If WDC's next earnings are the catalyst, the July calls may not be the best value, but there is a pretty good chance that the market will wake up and see that WDC is killing it well before the first week of August. If you are a real smooth brain ape, you can't go wrong with shares. There is virtually no downside risk, WDC was already turning heads this year even without the new currency. STONKS ONLY GO UP
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