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Artificial intelligence (AI) has been the headline driver of the S&P 500 for several years. Nvidia’s graphics processing units (GPUs) became the essential pick-and-shovel tool powering machine learning, cloud computing, and now generative AI. But 2025 has revealed cracks in the narrative. Nvidia’s performance this year has trailed rivals like AMD, Broadcom, and Super Micro Computer, suggesting investors are starting to question its stretched valuation.
As money moves away from overhyped chips, attention is turning to another key cog in the AI machine — digital storage. Every AI query needs to be written somewhere, and those billions of queries quickly stack up. External solid-state drives (eSSD) have become the go-to option, with adoption driven by their reliability and efficiency compared with older hard disk drives (HDDs).
Generative AI usage exploded to 65% in 2024 from 33% in 2023. As the models balloon in size, storage demand is surging. It reminds me of the Coloma gold rush in the 1850s. The prospectors often failed, but the shovel sellers got rich. Today, digital storage firms are the modern-day shovel sellers of the AI age. Two giants stand out — Seagate Technology and Western Digital (NASDAQ: WDC).
Seagate’s share price has already rocketed 120% in 2025, leaving it looking a little stretched. So I’ve been taking a closer look at Western Digital instead.
Western Digital
Western Digital is one of the largest producers of HDDs, SSDs, and flash memory worldwide. Its stock has climbed an impressive 109% this year. The latest quarterly results show why. Revenue came in at $2.61bn, a 30% increase year on year, beating analyst expectations by nearly 5%.
Its cloud business — which now makes up 90% of total sales — jumped 36%. Shipments of its next-generation 26TB CMR drives and 32TB UltraSMR drives doubled. This type of innovation is exactly what AI developers need to keep up with soaring data demand.
Financially, the company looks healthier than some rivals. Unlike Seagate, where liabilities outweigh assets, Western Digital’s balance sheet remains balanced, with a debt-to-equity ratio of 0.96. Operating cash flow hit $1.87bn in the most recent period, giving it breathing space to invest in the next wave of storage tech.
So is the stock worth considering?
Some analysts seem to think the stock is worth considering. On 8 September, Citigroup reiterated a Buy rating, nudging its price target up from $88 to $110. Forecasts suggest earnings could grow 31.9% in the current financial year ending June 2026. Plus, its forward price-to-earnings (P/E) ratio of 14.4 still looks reasonable when compared with many AI-related stocks trading at eye-watering multiples.
There are risks, of course. Western Digital faces stiff competition from Seagate, Micron, and Samsung, all of which are fighting for the same enterprise storage contracts. A large proportion of sales are concentrated among a handful of big customers. If one of these giants were to cut orders or switch suppliers, earnings could take a serious hit. And like Nvidia, there’s always the risk that excitement pushes the valuation too high, too quickly.
So while Western Digital is not risk-free, compared with many AI stocks, its valuation looks more grounded. With strong revenue growth, improving margins, and a healthy balance sheet, I think it’s one to consider for investors seeking more stable exposure to the AI boom.
