AI HDD Stocks' 257% and 316% Surges in 2025: Is 2026 the Next Boom or Bust?

Seagate Technology and Western Digital saw their stocks skyrocket in 2025, surging 246.3% and 306.8% respectively, far outpacing broad market gains amid surging demand for hard disk drives in AI data centers. The core driver is the explosion of data generated by artificial intelligence workloads, requiring vast nearline storage for less frequently accessed information. Seagate's Q1 results underscored this, fueling a massive single-day stock jump and boosting its revenue by 21.3% to $2.6 billion year-to-date. This strong order intake, particularly in the final quarter, underpins expectations for continued growth.

Supply constraints have become a key advantage, giving these manufacturers significant pricing power. Unlike SSD makers facing intense competition, HDD producers are cautiously expanding capacity to avoid a costly overbuild, allowing them to maintain healthy margins despite rising input costs. This deliberate capacity management while mitigating immediate oversupply risk, also signals potential future supply bottlenecks if demand remains robust. However, the high valuations now reflected in forward price-to-earnings ratios of 24 to 27 make these stocks vulnerable to correction. The cyclical nature of the storage market means any unexpected slowdown in AI investment or a sudden surge in NAND flash capacity could quickly erode these elevated multiples.

Furthermore, the long-term displacement threat from solid-state storage remains a constant risk, as tech firms increasingly prioritize faster, more efficient NAND solutions for certain workloads.

Growth Sustainability: Demand Drivers and Penetration Risks

Building on the earlier focus on financial stress in the property sector, the burgeoning AI and data‑center storage landscape offers a contrasting narrative of robust demand signals. Enterprise artificial intelligence spending has exploded, reaching $37 billion in 2025-a 222 % jump from the prior year-and now accounts for over 6 % of the global SaaS market, with most purchases made from third‑party vendors rather than in‑house builds. This surge reflects a broad shift toward productivity‑driven AI solutions across industries, as highlighted by the rapid adoption rates and the emergence of startups capturing a sizable share of the AI application market. According to industry analysis, this trend is accelerating.

The strong AI demand is translating into outsized growth for hardware makers, particularly nearline hard‑disk drives (HDDs) that serve hyperscale data‑center workloads. Seagate and Western Digital saw their stock prices surge 257 % and 316 % in 2025, respectively, as companies like OpenAI and other AI‑focused firms expanded storage needs. This demand flex is reflected in the elevated forward price‑to‑earnings multiples-around 27× and 24×-which, while still high, suggest market confidence in the sustained need for massive, low‑cost storage. According to financial reports, this growth is expected to continue.

Yet the HDD story carries a subtle risk: a growing substitution threat from solid‑state drives (SSDs). SSDs offer faster access, higher efficiency, and better scalability, making them an attractive alternative for data‑center operators looking to boost performance and reduce latency. As the learning curve for SSD deployment steepens, hyperscalers are increasingly integrating SSDs into mixed‑storage architectures, which could erode the pricing power and margin upside for HDD suppliers if substitution accelerates.

For now, nearline HDDs retain a cost‑performance edge for bulk, cold‑data storage, a segment that still dominates the total data‑center footprint. The substitution demand has not yet triggered a wholesale shift, and capacity expansion plans for HDDs remain cautious, helping to blunt near-term price erosion. Investors should monitor the penetration rate of SSDs relative to HDDs and the speed at which hyperscalers adopt mixed-storage strategies, as these dynamics will ultimately determine whether the current AI-driven storage growth story can sustain its momentum over the next few years.

Valuation, Catalysts, and 2026 Scenarios

Seagate and Western Digital have delivered massive gains in 2025, with shares surging 257% and 316% respectively. According to market analysis, these jumps stem from booming demand for HDDs in AI data centers, where cheaper but slower "nearline" storage handles non-immediate data access. However, this rapid rise comes with valuation concerns. Both companies trade at elevated forward P/E multiples-27 and 24-and Seagate's P/E hits 36.6x, reflecting high growth expectations.

A DCF analysis suggests Seagate is undervalued by 19.7%, with an intrinsic value of $358.27 per share. This optimism hinges on sustained AI adoption and hardware refresh cycles fueling storage needs. Yet risks linger. NAND-based SSDs threaten HDD displacement as tech firms buy more NAND, and both companies face margin pressures while cautiously expanding capacity to avoid oversupply.

For 2026, the outlook hinges on demand sustainability. If AI-driven storage needs persist, the current undervaluation could correct upward. But if demand shifts or supply catches up, the high P/E multiples make these stocks vulnerable to sharp corrections. The substitution threat from SSDs remains a structural headwind, even as nearline HDDs retain cost advantages for certain data tiers.