Western Digital surges 185% YTD as AI storage demand drives HDD revival

Western Digital Corp.'s pivot to a pure-play hard-drive business is paying off as AI data centers, long associated with cutting-edge flash storage, increasingly turn to high-capacity HDDs for cost-effective data retention.

"The market is recognizing that AI's data storage needs are massive and multi-layered — not every byte needs to sit on flash," said Aaron Rakers, an analyst at Wells Fargo. "WDC's HDD focus gives it clean exposure to that trend."

The stock has surged 185% year-to-date through June 11, outpacing rival Seagate Technology Holdings Plc, which gained 119% over the past three months. WDC trades at 31.73 times forward earnings, compared with Seagate's 33.99 times and Sandisk Corp.'s 76.99 times.

The rally reflects a broader repricing of storage companies as hyperscale cloud providers lock in multiyear HDD supply agreements. Seagate has already committed much of its nearline capacity through 2027 under long-term contracts, while WDC benefits from improving pricing power — Seagate reported mid-single-digit sequential price-per-exabyte increases for several quarters.

Western Digital streamlined its business after spinning off its NAND flash division into Sandisk, which completed its separation in early 2026. Sandisk has since signed five multiyear supply agreements carrying minimum contractual revenues of $42 billion in remaining performance obligations, with financial guarantees exceeding $11 billion. The move left WDC as a dedicated HDD manufacturer competing directly with Seagate in the nearline storage market, where AI workloads are generating unprecedented demand for bulk data retention.

AI training and inference pipelines produce enormous volumes of checkpoint data, logs and cached embeddings that do not require the sub-millisecond latency of solid-state drives. Hyperscalers deploying Nvidia Corp. graphics processing units at scale are pairing them with high-density HDD arrays, pushing nearline storage demand well above pre-AI forecasts. Seagate's Mozaic-based drives, built on HAMR (heat-assisted magnetic recording) technology, are already shipping to a major cloud provider, and the company raised its annual revenue growth outlook to at least 20 percent.

Seagate's incremental gross margins have exceeded 70 percent, well above its 50 percent target, driven by favorable product mix and pricing improvements. The company is transitioning to higher-capacity 3-terabyte and 4-terabyte-per-platter drives, which improve space and power efficiency without proportional cost increases. WDC is pursuing a similar technology roadmap, though it has not disclosed specific HAMR adoption timelines.

The competitive landscape has narrowed to two primary HDD suppliers — WDC and Seagate — after Toshiba Corp. ceded meaningful market share in enterprise nearline drives. This duopoly structure has supported pricing discipline, with both companies reporting stable or improving average selling prices over the past four quarters. Seagate management expects continued price increases through fiscal 2027, citing strong demand visibility and disciplined supply.

For investors, the key question is whether the current valuations already price in the AI storage tailwind. Seagate's forward P/E of 33.99 and WDC's 31.73 reflect expectations of sustained earnings growth, with Seagate's fiscal 2027 EPS estimates rising 33.6 percent over the past 60 days to $26.34. Sandisk, despite its contracted revenue model, trades at a much higher multiple of 76.99 times forward earnings, suggesting the market assigns a premium to its flash-focused AI narrative. If HDD demand proves more durable than the market currently assumes, WDC and Seagate could see further multiple expansion as earnings catch up to the revenue trajectory.

This article is for informational purposes only and does not constitute investment advice.