Why data storage stocks are a key AI play

The AI roar is fueling a retention crunch that could powerfulness Seagate Technology’s (STX) and Western Digital’s (WDC) profits for years.

“Hard disk thrust proviso remains choky arsenic manufacturers are not adding portion capableness and we spot this arsenic a structural change,” Bank of America expert Wamsi Mohan said successful a caller enactment to clients. “As such, we proceed to spot request exceeding supply, and spot continued scope for OEMs to rise prices.”

Seagate and Western Digital are positioned to benefit. Data centers necessitate high-capacity hard disk drives (HDDs) for storing, training, and managing large-scale AI datasets. While GPUs, similar those from Nvidia (NVDA), process the data, HDDs stay the astir cost-effective mode to store the immense amounts of accusation that underpin LLMs. These drives are the backbone of large infrastructure providers similar Amazon (AMZN), Microsoft (MSFT), and Google (GOOG, GOOGL).

And the manufacture has changed. Mohan described the assemblage arsenic an “oligopoly” with lone 3 large players. The third, Toshiba, is not explicitly included successful the firm’s report. “We spot debased menace of caller entrants coming into the market,” helium added.

The deficiency of contention gives the remaining giants immense pricing powerfulness arsenic tech companies scramble for hardware.

Mohan suggests that for Seagate, net could astir treble to $45 per stock successful a bull lawsuit script by 2028. He raised his terms people for the banal to $700, applying a 29x aggregate connected his 2027 net estimate. Meanwhile, helium sees Western Digital’s imaginable net hitting $33 per share, mounting a caller terms people of $495 based connected the aforesaid assertive valuation.

Investors person already begun to instrumentality notice. Over the past 12 months, shares of Seagate person soared by astir 600%, portion Western Digital’s person jumped by astir 850%.

And the companies person the numbers to backmost it up. Seagate reported fiscal 2025 yearly gross of $9.10 billion, a 39% twelvemonth implicit twelvemonth jump. In its latest quarterly results connected Apr. 28, the institution posted $3.11 cardinal successful gross — a 44% summation implicit the anterior twelvemonth — beating expert expectations of $2.95 billion, according to Bloomberg data. Adjusted EPS deed $4.10, surpassing expectations of $3.50.

Western Digital has besides shown momentum. In fiscal 2025, yearly gross reached $9.52 billion, up 51% twelvemonth implicit year. In its astir caller 2nd 4th report, the institution posted gross of $3.02 billion, a 25% leap that exceeded Wall Street’s $2.98 cardinal estimate, according to Bloomberg data. Adjusted EPS of $2.13 bushed expectations of $1.95. The institution is scheduled to denote its 3rd 4th net connected Apr. 30.