Picture supply: Getty Photographs
It’s been one other bumper yr for US development shares. The synthetic intelligence (AI) gold rush remains to be in full swing, and whereas family names like Nvidia and AMD have dominated the headlines, it’s the smaller companies behind the scenes that hold the sector ticking.
One space quietly having fun with explosive development is information storage. In spite of everything, each chatbot, server and AI mannequin wants someplace to stash its ones and zeroes. That’s the place firms resembling Seagate Know-how (NASDAQ: STX) and Western Digital are available in. These are the digital storage giants — and considered one of them is totally flying in 2025.
The surging contender
Seagate has emerged as a top-performing US development inventory this yr, with the share value up 70% yr so far. Earnings development has adopted go well with, hovering 343% over the previous 12 months.
What’s driving this? Primarily, rising demand from cloud computing companies and AI builders who want enterprise-level storage at scale. Seagate sits squarely in that candy spot.
But regardless of the meteoric rise, its valuation stays interesting. The trailing price-to-earnings (P/E) ratio sits at 21.8, with a ahead P/E of simply 14.3, suggesting the market expects additional earnings development forward.
Add in a 1.9% dividend yield – comparatively excessive for US development shares – and there’s one thing right here for earnings seekers too. The payout’s nicely lined, with a ratio of simply 42.2%, and it has a good 15-year monitor report of uninterrupted funds.
What’s the catch?
Like most high-growth tech companies, the steadiness sheet isn’t bulletproof. Seagate carries $5.37bn in debt, and its $8.48bn in complete liabilities outweighs complete property of $8bn.
Working money stream sits at simply $1.08bn, which doesn’t go away a lot room for error if earnings slip. Its fast ratio’s under 1, a purple flag suggesting the corporate may battle to fulfill short-term obligations if circumstances tighten.
In different phrases, it is a enterprise that relies upon closely on continued development. If demand for information storage slows, it might be in bother.
How does it stack as much as Western Digital?
Rival Western Digital operates in the identical house and has carried out moderately nicely this yr. However when evaluating the 2, Seagate appears to be like stronger on practically each key metric.
Income and earnings development at Seagate far outpace Western Digital, which has seen comparatively flat numbers in each areas. Return on capital employed (ROCE) is way greater at Seagate (33% vs 14.7%), pointing to superior capital effectivity. Internet margins additionally favour Seagate, at 16% vs 13.9%.
Nonetheless, Western Digital does have a barely decrease valuation, which provides development potential. Nevertheless it doesn’t pay a significant dividend and lacks the long-term monitor report that Seagate provides.
My verdict
Truthfully, each firms are very intently matched. Seagate’s steadiness sheet raises some eyebrows, and with the fill up 70%, the straightforward cash might have already been made. Western Digital might have extra room for development, however its earnings are lacklustre.
Nonetheless, for traders in search of fast-growing US development shares with sturdy fundamentals and AI publicity, I feel each are price contemplating – even at at the moment’s costs.
