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The disk-drive industry continued to see an unusual spike in demand, spurred by a surge of demand for drives used to “farm” Chia, a new cryptocurrency.
Chia uses a different model than other cryptocurrencies to create new coins. Most rely on a “proof of work” model to verify transactions. Crypto miners solve complex mathematical problems to earn coins. That requires lots of computational power, which is why crypto mining is so energy-intensive.
Tesla (ticker: TSLA) and SpaceX CEO
Elon Musk
roiled the Bitcoin market recently when he said that Tesla would no longer accept Bitcoin for vehicle purchases, given crypto mining’s intense energy usage. “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at a great cost to the environment,” Musk said in a recent tweet.
Chia uses a “proof of space and time” model tied to storage capacity committed to be used on the blockchain, rather than computational might. The approach is far less energy-intensive than other methods of creating cryptocurrency, and at least some players in the crypto market seem intrigued—at least judging by the spike in demand for high-capacity disk drives.
On Thursday, BofA Global Research analyst
Wamsi Mohan
raised his price targets on shares of both
Seagate
and
Western Digital,
which together control most of the disk-drive market. For Seagate stock (STX), the analyst’s target is now a Street-high $120, up from $107. For Western Digital (WDC), his new target is $90, up from $80. He maintains Buy ratings on both stocks.
Mohan notes that as of Wednesday, more than 8 exabytes of storage had been allocated to the Chia network, an increase of more than 2,000% in a month. To put that in perspective, he notes that Seagate in the March quarter shipped close to 140 exabytes, up about 10 exabytes from the December quarter—this is no trivial increase in demand. Over the same period, Western Digital’s production increased by about 9 exabytes.
The extra demand is spurring price increases, too: Mohan notes that the price of 14-terabyte drives on
Amazon.com
has increased between 73% and 75% in recent weeks, with 16 TB drives up between 53% and 61%.
The analyst raised his per-share earnings estimates slightly for both companies for the June 2021 fiscal year, with a slightly wider increase for fiscal 2022.
On Thursday, both Seagate and Western Digital are trading slightly lower. While the two stocks’ gains have moderated in the recent cryptocurrency selloff, Western shares still hold a 10% gain since the Chia-driven rally started last week, while Seagate has rallied 16%.
Write to Eric J. Savitz at eric.savitz@barrons.com
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