AI-Driven Growth Reshapes Data Storage Sector: Momentum and Valuation Re-Rating in Focus

The data storage sector is undergoing a transformative re-rating, fueled by the exponential growth of artificial intelligence (AI) and the insatiable demand for scalable infrastructure. At the forefront of this shift is SanDisk (SNDK), whose recent price target upgrade from Bank of America (BofA) underscores the sector's momentum. BofA analysts doubled their price target for SanDisk from $59 to $125 per share in September 2025, citing AI-driven demand for NAND flash memory and tighter market conditionsSanDisk stock target more than doubled at BofA on AI demand …^[1]. This move aligns with broader industry trends, as companies like Western Digital (WDC) and Seagate Technology (STX) also capitalize on surging demand for high-capacity storage solutions.

Sector Momentum: AI and Cloud Computing as Catalysts

The AI boom is reshaping data storage dynamics. According to Gartner, global AI spending is projected to reach $1.5 trillion in 2025, with infrastructure investments—particularly in data centers—driving demand for storage hardwareGartner Says Worldwide AI Spending Will Total $1.5 Trillion in 2025^[2]. SanDisk, a leader in NAND flash technology, is benefiting from this shift. BofA analysts noted that cloud revenue already accounts for 12% of SanDisk's first-half 2025 revenue, up from 6% in 2024, and expects this to rise to 20% by 2026SanDisk stock target more than doubled at BofA on AI demand …^[1]. Meanwhile, Western Digital has reported “unprecedented demand” in the AI era, with its stock nearly doubling in 2025 as it raised prices for hard disk drives (HDDs) and expanded its SMR-based drive shipmentsSome of the Biggest AI Winners of 2025 Are Data Storage Stocks^[3].

Seagate, another industry heavyweight, has also outperformed, with its stock more than doubling in 2025. The company's Mosaic 3+ platform enables drives with capacities exceeding 30TB, catering to hyperscale cloud providers and enterprises seeking cost-effective, high-density storage3 Data Storage Stocks Poised to Profit From the AI Boom^[4]. Analysts at Morgan Stanley and Wedbush have labeled Western Digital a “top pick” and “best idea,” respectively, reflecting strong Wall Street support for the sectorSome of the Biggest AI Winners of 2025 Are Data Storage Stocks^[3].

Valuation Re-Rating: Growth vs. Stability

Valuation metrics highlight divergent strategies within the sector. SanDisk's price-to-earnings (P/E) ratio of 24.61 reflects investor optimism about its high-growth flash storage business, while Western Digital's lower P/E of 9.70 underscores its focus on stable HDDs and enterprise contractsSome of the Biggest AI Winners of 2025 Are Data Storage Stocks^[3]. However, SanDisk's enterprise value-to-EBITDA (EV/EBITDA) ratio of -20.9x indicates current financial challenges, contrasting with Western Digital's 13.02 EV/EBITDA multipleWDC EV/EBITDA | Western Digital Corp (WDC)^[5]. This disparity suggests that while SanDisk's valuation is forward-looking, its peers are being valued more conservatively based on near-term profitability.

The broader data storage sector trades at an EV/EBITDA of 13.46, significantly below the 27.25 multiple of the broader Information Technology sectorEV/EBITDA Multiple by Sector/Industry 2025 | Siblis Research^[6]. This gap implies undervaluation relative to peers, particularly as AI adoption accelerates. For context, the global data storage market is projected to grow from $250.77 billion in 2025 to $483.90 billion by 2030, at a compound annual growth rate (CAGR) of 14.05%Data Storage Market Size & Share Analysis - Industry …^[7]. North America dominates this growth, driven by hyperscale data centers, while the Asia-Pacific region is expected to see the fastest expansion due to digitalization and cloud adoptionData Storage Market Size & Share Analysis - Industry …^[7].

Risks and Resistance

Despite the bullish outlook, challenges persist. SanDisk's attempt to implement a 10% NAND price increase has faced demand-side resistance, highlighting potential headwinds in translating supply constraints into higher marginsInsights] Memory Spot Price Update: Sandisk’s 10% Price Hike Meets Demand-Side Resistance^[8]. Similarly, the HDD market saw a 9.5% decline in shipments during Q1 2025, though ASPs hit late-1990s highs, signaling resilience in niche segmentsC1Q 2025 HDD Industry Update^[9]. Analysts caution that while AI and cloud demand are robust, macroeconomic factors—such as U.S. tariffs and inflation—could introduce volatilityThird Quarter 2025 Quarterly Market Update - Fidelity Institutional^[10].

Conclusion: A Sector Poised for Long-Term Gains

The data storage sector's re-rating is a direct response to AI's infrastructure demands and the cloud's dominance. SanDisk's price target upgrade, coupled with Western Digital and Seagate's strong performance, illustrates the sector's ability to balance growth and stability. While valuation disparities exist, the industry's projected CAGR and undervalued multiples relative to the broader tech sector present compelling opportunities for investors. As AI spending accelerates and data generation outpaces Moore's Law, the winners in this space will be those that combine technological innovation with strategic pricing power.