AI Infrastructure Investments Fuel 156% Surge in Seagate Stock

This year, traditional hardware companies have seen their stock prices surge, with Seagate Technology rising 156% to lead the S&P 500, Western Digital up 137% to rank third, and Micron Technology up 93% to rank fifth. These storage device manufacturers have benefited from the massive investments made by large technology companies in AI infrastructure. There is a divide on Wall Street regarding this phenomenon: bulls see it as a manifestation of AI computing demand spillover effects, while bears warn of market bubble signs.

In the current global AI wave, traditionally overlooked hardware companies have become the brightest stars in the U.S. stock market with astonishing gains. However, is this a true reflection of the "spillover effect" of AI infrastructure construction, or is it the last hurrah before the bubble bursts?

The most eye-catching stars in the U.S. stock market, driven by the AI craze, are not cutting-edge tech companies but a group of traditional tech firms. Seagate Technology has surged 156% this year to become the best-performing stock in the S&P 500 index, while rival Western Digital has risen 137% to rank third, and Micron Technology has climbed 93% to rank fifth.

These companies, founded before the birth of Facebook founder Mark Zuckerberg and OpenAI CEO Sam Altman, are benefiting from massive investments in AI infrastructure. Large tech companies annually invest hundreds of billions of dollars in semiconductors, networking equipment, and data center power supply to support the training of large language models and the operation of AI workloads.

However, there is a divide on Wall Street regarding this phenomenon. Bulls see it as a demonstration of AI computing demand driving a wide range of business areas, while bears warn it as the latest sign of a market bubble. The chief market strategist of Jonestrading expressed concern: "When people start looking for secondary and tertiary trading opportunities, it indicates that the market cycle is in a very late stage."

Traditional storage giants are riding the AI express. Hard disk drive technology dates back to the 1950s when devices weighed over 2,000 pounds and could only store 5 megabytes of data. Today, personal computer hard drives can reach 2TB in capacity and weigh less than 1.5 pounds. Seagate and Western Digital are focusing on developing massive data storage solutions needed to train large language models.

Since the release of ChatGPT nearly three years ago, AI infrastructure investments have continued to pour in. Companies like Microsoft and Alphabet invest hundreds of billions of dollars annually in semiconductors, networking equipment, and data center power to train large language models and run AI workloads.

This spending wave has not only driven the market capitalization of companies like NVIDIA and TSMC to over 100 billion dollars but has also benefited previously obscure storage device manufacturers. Micron's high-bandwidth DRAM memory has become a core component of AI computing, despite its technological importance, these companies struggle to capture the interest of ordinary investors.

Despite the surge in stock prices, the valuations of these three companies remain relatively reasonable. At the beginning of the year, Western Digital's price-to-earnings ratio was less than 6 times, while Seagate and Micron were around 10 times. Although valuations have increased, they are still below the S&P 500 index's expected price-to-earnings ratio of 23 times.

Benchmark Co. analyst Mark Miller raised Seagate's target price to the highest on Wall Street at 250 dollars, still offering over 13% upside from the previous Friday's closing price of 221 dollars. He believes that given the strong demand outlook for products, Seagate's valuation of 20 times remains attractive.

Bubble concerns continue to brew on Wall Street. Overall, the Street is bullish on these three stocks, but their price increases have exceeded analyst expectations. Seagate's trading price is more than 20% above the average target price, Western Digital is more than 10% above, and Micron is slightly above expectations.

For traders who have experienced the internet bubble, the current phenomenon is worrying. They suggest that historically, any cyclical business typically peaks at low multiples and bottoms at negative earnings, advising to buy when the cycle reverses and companies are losing money, and to sell when multiples appear healthy.

The AI craze has also driven up stock prices in other traditional industries. Vistra Corp, an electricity producer, has risen 53% this year, after a 258% surge in 2024. Broadcom, a chip manufacturer, has a market capitalization of 160 billion dollars. Oracle has become the tenth-largest company by market capitalization in the S&P 500 due to demand for cloud computing services, and its stock surged 36% in a single day after its September 9 earnings report, setting a new valuation high since the internet bubble.

Forrest warns that AI is currently being overhyped, similar to internet technology, and that actual use cases will develop more slowly than most people expect. She cautions, "If you buy products specifically for AI or data centers, anything on a straight upward trajectory could become a cautionary tale."