Why Western Digital Stock Popped Today
Key Points
The Trump Administration does not want Apple buying memory chips from China.
But there's a global deficit of memory chips.
Western Digital's hard disk drives could provide an alternative.
Computer hard-drive manufacturer Western Digital (NASDAQ: WDC) stock jumped a lucky 7% through 11:25 a.m. ET Monday -- and has Donald Trump to thank for it.
Over the weekend, Trump Commerce Secretary Howard Lutnick told The Wall Street Journal the Trump administration "is not in favor" of Apple (NASDAQ: AAPL) buying high-bandwidth memory (HBM) from Yangtze Memory Technologies and CXMT in China, and would prefer Apple buy from manufacturers reshoring semiconductor manufacturing to the United States instead.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: The White House.
What this means for Western Digital stock
What does this have to do with Western Digital, which doesn't make HBM, but rather old-tech hard disk drives?
Broadly speaking, both DRAM and NAND memory chips, and also the hard disk memory drives that Western Digital makes, are used for computer memory. Memory demands have gone through the roof as everyone and his brother rushes to build data centers -- and to tailor them to provide memory-intensive "inference" functions.
AI hyperscalers would generally prefer to use HBM for this. Still, the harder it becomes to obtain HBM supply and the higher HBM prices go, the more they'll look for alternative (and cheaper) ways to store information in memory.
Western Digital's hard drives provide one such alternative.
What's next for Western Digital stock
This is not exactly a secret, and investors have already bid up Western Digital stock by 5x over the past year in anticipation of stronger demand for the company's products. Even so, at a price-to-earnings ratio of just 21x and a projected long-term annual earnings growth rate of 68%, Western Digital stock doesn't look unreasonably expensive today.
And with President Trump intent on closing off one possible solution to the memory crisis, Western Digital stands out as one of the few options remaining. That can only be good for Western Digital stock.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Western Digital. The Motley Fool has a disclosure policy.