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Synthetic intelligence (AI) has been the headline driver of the S&P 500 for a number of years. Nvidia’s graphics processing models (GPUs) grew to become the important pick-and-shovel device powering machine studying, cloud computing, and now generative AI. However 2025 has revealed cracks within the narrative. Nvidia’s efficiency this 12 months has trailed rivals like AMD, Broadcom, and Tremendous Micro Laptop, 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 shortly stack up. Exterior solid-state drives (eSSD) have turn into the go-to choice, with adoption pushed by their reliability and effectivity in contrast with older exhausting disk drives (HDDs).
Generative AI utilization exploded to 65% in 2024 from 33% in 2023. Because the fashions balloon in dimension, 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. Immediately, 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 wanting a bit of stretched. So I’ve been taking a better have a look at Western Digital as an alternative.
Western Digital
Western Digital is without doubt one of the largest producers of HDDs, SSDs, and flash reminiscence worldwide. Its inventory has climbed a formidable 109% this 12 months. The newest quarterly outcomes present why. Income got here in at $2.61bn, a 30% enhance 12 months on 12 months, beating analyst expectations by almost 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 have to sustain with hovering information demand.
Financially, the corporate appears more healthy than some rivals. Not like Seagate, the place liabilities outweigh belongings, Western Digital’s stability sheet stays balanced, with a debt-to-equity ratio of 0.96. Working money stream hit $1.87bn in the newest interval, giving it respiration area to spend money on the subsequent wave of storage tech.
So is the inventory price contemplating?
Some analysts appear to assume the inventory is price contemplating. On 8 September, Citigroup reiterated a Purchase score, nudging its value goal up from $88 to $110. Forecasts recommend earnings may develop 31.9% within the present monetary 12 months ending June 2026. Plus, its ahead price-to-earnings (P/E) ratio of 14.4 nonetheless appears affordable compared with many AI-related shares buying and selling at eye-watering multiples.
There are dangers, in fact. Western Digital faces stiff competitors from Seagate, Micron, and Samsung, all of that are combating for a similar enterprise storage contracts. A big proportion of gross sales are concentrated amongst a handful of massive clients. If certainly one of these giants had been to chop orders or swap suppliers, earnings may take a critical hit. And like Nvidia, there’s at all times the danger that pleasure pushes the valuation too excessive, too shortly.
So whereas Western Digital isn’t risk-free, in contrast with many AI shares, its valuation appears extra grounded. With sturdy income progress, enhancing margins, and a wholesome stability sheet, I believe it’s one to think about for buyers searching for extra steady publicity to the AI growth.
