Western Digital (WDC) stocks have barely changed compared to two years ago, although earnings per share have tripled during that time. This makes the hard drive manufacturer one of the cheapest big companies in the UAE: it recently predicted trading at 6x expected earnings, or about 40% off the S&P 500 index. Whether you are using it for games or regular chores, if you expect optimal performance, you must ensure that your computer’s hard drive is high-end. Once my hard drive stopped working in online games, I almost won, and the sad part is that I not only lost the game, I also lost all the data. I don’t have the best game hard drive.

The hard drive uses a magnetic coating to manipulate the magnetic field on the disk to store information. This process is somewhat similar to how a video recorder or cassette works. Each hard drive has a different number of discs inside, which are collectively referred to as discs. Hard disks with multiple platters have greater storage capacity and use both sides of these disks to store data.

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Bloomberg News

Harlan Sur, an analyst at JPMorgan, wrote in a recent report that it is time to buy stocks. Forecasts mean that stocks are expected to increase nine-fold in the fiscal year ending June 2019. This is not particularly far-fetched compared to recent history. In the past five years, the average yield of stocks has been 9 times.

The stagnation of the stock has been a top priority in recent years: hard drives are rapidly losing market share in solid-state drives, and solid-state drives have faster speeds and lower power consumption. In the SSD, Western Digital and Intel (INTC) ranked second in market share, at 13%, behind the leading Samsung Electronics (005930.Korea), at 40%. But the hard drive market is a near-duopoly area, with Western Digital Inc. standing out on Seagate Technology (STX).

This means that the biggest exposure of Western Digital is the market downturn. At the same time, the price of flash memory for SSD drives is expected to decline next year. In Western Digital’s latest earnings report, it guided the decline in gross margin from the quarter to June. Therefore, although the adjusted earnings growth in the previous quarter exceeded 50% and exceeded the expected 10%, the stock price fell by 8% within one day after the report was released.

The good news for Western Digital is that the cost per dollar of hard drives is still 10 times the SSD storage capacity. This means that although hard drives may no longer be favored by personal computers, they still require cloud computing, and the demand for storage is high, and buyers are paying close attention to their storage investment returns. Western Digital has introduced a new hard disk manufacturing technology called microwave-assisted magnetic recording that can help it reach 40TB of drive capacity by 2025. Compared to the largest model available today, this is a 14TB drive built using traditional manufacturing techniques.

This means that Western Digital will enjoy the luxury free cash flow from the hard drive business in the next few years, while participating in the growth of SSD, especially cloud computing customers. As for the drop in gross profit margin, Jon Chase’s Sur pointed out that these are very typical at this time of the year, in part because of the combination of game consoles, smartphones and PCs. The recent weakness in lightning prices is offset by the bright prospects for long-term demand.

All of this means that Western Digital’s stock valuations may rise from terrible levels to more typical discounts in recent years – bringing returns to deep value investors along the way.

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