Picture supply: Getty Pictures
Synthetic intelligence (AI) has been the headline driver of the S&P 500 for a number of years. Nvidia’s graphics processing items (GPUs) turned the important pick-and-shovel software powering machine studying, cloud computing, and now generative AI. However 2025 has revealed cracks within the narrative. Nvidia’s efficiency this yr has trailed rivals like AMD, Broadcom, and Tremendous Micro Pc, suggesting buyers are beginning to query its stretched valuation.
As cash strikes away from overhyped chips, consideration is popping to a different key cog within the AI machine — digital storage. Each AI question must be written someplace, and people billions of queries rapidly stack up. Exterior solid-state drives (eSSD) have change into the go-to possibility, with adoption pushed by their reliability and effectivity in contrast with older onerous disk drives (HDDs).
Generative AI utilization exploded to 65% in 2024 from 33% in 2023. Because the fashions balloon in measurement, storage demand is surging. It jogs my memory of the Coloma gold rush within the 1850s. The prospectors usually failed, however the shovel sellers received wealthy. At the moment, digital storage corporations are the modern-day shovel sellers of the AI age. Two giants stand out — Seagate Expertise and Western Digital (NASDAQ: WDC).
Seagate’s share value has already rocketed 120% in 2025, leaving it trying just a little stretched. So I’ve been taking a more in-depth take a look at Western Digital as an alternative.
Western Digital
Western Digital is likely one of the largest producers of HDDs, SSDs, and flash reminiscence worldwide. Its inventory has climbed a powerful 109% this yr. The most recent quarterly outcomes present why. Income got here in at $2.61bn, a 30% enhance yr on yr, beating analyst expectations by practically 5%.
Its cloud enterprise — which now makes up 90% of complete gross sales — jumped 36%. Shipments of its next-generation 26TB CMR drives and 32TB UltraSMR drives doubled. The sort of innovation is precisely what AI builders must sustain with hovering knowledge demand.
Financially, the corporate seems more healthy than some rivals. Not like Seagate, the place liabilities outweigh belongings, Western Digital’s steadiness sheet stays balanced, with a debt-to-equity ratio of 0.96. Working money circulation hit $1.87bn in the newest interval, giving it respiratory house to spend money on the subsequent wave of storage tech.
So is the inventory value contemplating?
Some analysts appear to assume the inventory is value contemplating. On 8 September, Citigroup reiterated a Purchase ranking, nudging its value goal up from $88 to $110. Forecasts counsel earnings may develop 31.9% within the present monetary yr ending June 2026. Plus, its ahead price-to-earnings (P/E) ratio of 14.4 nonetheless seems affordable compared with many AI-related shares buying and selling at eye-watering multiples.
There are dangers, after all. Western Digital faces stiff competitors from Seagate, Micron, and Samsung, all of that are preventing for a similar enterprise storage contracts. A big proportion of gross sales are concentrated amongst a handful of massive prospects. If certainly one of these giants have been to chop orders or swap suppliers, earnings may take a critical hit. And like Nvidia, there’s all the time the danger that pleasure pushes the valuation too excessive, too rapidly.
So whereas Western Digital is just not risk-free, in contrast with many AI shares, its valuation seems extra grounded. With robust income development, enhancing margins, and a wholesome steadiness sheet, I feel it’s one to contemplate for buyers looking for extra steady publicity to the AI growth.
