The hard drive has made an unexpected comeback in an AI boom that has made Nvidia and OpenAI the preferred options for investors. Leaders in the sector are already reporting impressive gains, but investors are only now realizing the change.
The two biggest companies in the hard drive industry, Western Digital and Seagate Technology Holdings, both reported revenue increases of roughly 30% in their most recent quarters. Even though the growth may not match the meteoric rise of Nvidia or Oracle, it still marks a startling comeback for businesses that more ostentatious technologies previously displaced.
AI boom has led to explosive hard drive growth
AI’s ravenous appetite for storage has driven the recovery. In its most recent quarter, Western Digital shipped 190 exabytes of storage, a 32% increase over the same period last year. In the same time frame, Seagate shipped 45% more exabytes. Their results have been further reinforced by rising high-capacity drive prices.
AI is not like previous demand cycles. Remote work and education reduced the need for storage during the COVID lockdowns, but when habits became more commonplace, revenue fell. Prior to AI reviving demand, global hard drive revenue dropped by almost 30% in 2023, according to Gartner. Companies now typically retain data used to train AI models rather than deleting or repurposing it, in contrast to previous booms. Furthermore, AI produces a vast amount of original content. For instance, Google claimed last month that in just three months, users had produced 100 million AI videos using its Flow filmmaking tool.
According to Gartner, worldwide hard drive sales will double from 2023 to roughly $24 billion in 2024. Investors haven’t fully priced in optimism, though. Both Seagate and Western Digital are trading below the Nasdaq’s average multiple of 29, at about 16 and 20 times forward earnings, respectively. With Toshiba in third place, the duopoly of Seagate and Western Digital now has pricing power that was uncommon in the past. Their expansion is fueled by cloud services and AI developers: 90% of Western Digital’s revenue in the most recent quarter came from cloud computing. “You don’t have AI without data, you don’t have data without storage—and so they fully understand that,” Western Digital finance chief Kris Sennesael said at a Goldman Sachs conference last week.
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