By Paul R. La Monica

Nvidia, Palantir and other stocks at the forefront of the artificial intelligence revolution have been hit hard this week in the wake of a major tech sector pullback, sparking fears that AI could be a bubble about to finally burst. But two other notable techs that have been caught up in the 2025 AI frenzy, data storage firms Western Digital and Seagate, have been spared much of the recent carnage.

Although both stocks were down Friday, they are each trading near their all-time highs. Western Digital and Seagate are also both up about 4% to 5% in the past five trading days while the S&P 500 and Nasdaq have tumbled about 2.8% and 4.6% respectively.

Western Digital is now the best-performing stock in the S&P 500 this year, with a more than 240% gain. It bumped Robinhood, whose stock has slid after its latest earnings report on Wednesday, to second place. Meanwhile, Seagate is in third, with a nearly 215% pop this year.

What gives? Both companies recently reported strong earnings and upbeat guidance. So that is helping. But the fact that both stocks also continue to trade at far more reasonable valuations than other AI names probably can't be dismissed either.

Western Digital and Seagate currently trade for about 17.5 and 18.6 times 2026 earnings estimates, compared with a multiple of 22 for the S&P 500. Other tech stocks with ties to AI are trading at a big premium to the market. The Roundhill Magnificent Seven exchange-traded fund, for example, is valued at 32 times earnings forecasts for next year while the Global X Robotics & Artificial Intelligence Thematic ETF trades at a P/E of 34.

Ed Yardeni, president and chief investment strategist of Yardeni Research pointed out in a report Thursday that the two stocks are great examples of "companies that perform some of the workhorse tasks that make AI possible," adding that Western Digital and Seagate Technology Holdings have technology, namely hard disk drives, "that's been around for decades, and they're now a hot commodity thanks to the boom in AI data centers."

C.J. Muse, an analyst with Cantor Fitzgerald, pointed out in a report after the companies' latest earnings that supply shortages for hard drives have "only been exacerbated by strong AI-related demand," which should lead to higher prices (and profits) going forward.

"At the heart of today's strength is a sold-out [hard disk drive] market, " Muse said, adding that "we are only in the early innings of the AI Infrastructure build."

With that in mind, Muse said that both stocks should trade closer to the broader market's multiple as opposed to a discount, and he raised his price targets for both stocks following their earnings reports. Muse's new forecasts of $200 for Western Digital and $400 for Seagate are 27% and 48% higher than their current prices.

So even though disk drives may not be as sexy as chips from Nvidia and Broadcom or all the eye-popping AI spending from hyperscalers like Amazon, Alphabet and Oracle, data storage is also an important part of the ecosystem helping to power OpenAI's ChatGPT and other large language models. And the stocks of Western Digital and Seagate trade at much more attractive valuations than other AI leaders.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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November 07, 2025 11:42 ET (16:42 GMT)

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