By Nate Wolf

Forget chips and energy. The best artificial-intelligence stocks this year have been the hard-drive duopoly Seagate Technology and Western Digital, and their run isn't stopping soon, Citi says.

Citi reiterated Buy ratings and lifted its financial estimates for both stocks in a research note published late Monday night. The bank raised its price target for Western Digital to $200 from $180, and lifted its call on Seagate to $320 from $275.

Western Digital was up 2.2% to $167.10 in early trading Tuesday. Seagate rose 1.3% to $273.64.

"Use of AI tools is triggering a surge in creation of new content," wrote Citi analyst Asiya Merchant. "Data that was previously discarded is now retained and for longer duration under the assumption it may fuel future AI models." That requires storage space, creating demand for hard disk drives, or HDDs.

This narrative isn't new. Western Digital and Seagate are the best and third-best performers in the S&P 500 this year, soaring 263% and 213%, respectively. The real question is how long the surge in demand will continue for an industry that is often highly cyclical.

Citi's answer: Several years, at least.

The firm sees demand for enterprise-scale HDDs -- the type sold to data centers -- rising at a 20% compounded annual clip through 2029. That demand will support not just continued sales for Western Digital and Seagate, but also higher prices, the bank says.

The pair will still have to fend off the likes of Sandisk and Pure Storage, which specialize in flash-based solid state drives. These products are tapping into significant memory demand from data centers, Citi noted. But hard disk drives still have the advantage when it comes to storage per dollar.

"We did not get the impression that these flash-based solutions coming to market today are necessarily being positioned as direct [hard disk drive] replacements," Merchant wrote.

Most on Wall Street agree with Citi's upbeat view. Among 30 analysts tracked by FactSet, 77% rate Western Digital at Buy or the equivalent. For Seagate, 70% of the 27 analysts polled have a Buy or equivalent rating for Seagate.

Investors probably shouldn't expect 200% jumps every year. But they may want to resist the temptation to take profits now, given the potential for further gains.

Write to Nate Wolf at nate.wolf@barrons.com

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December 02, 2025 09:39 ET (14:39 GMT)

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