AI Data Boom: How Seagate and Western Digital Are Positioning Themselves in the Storage Wars

The explosion of AI applications and cloud infrastructure has transformed data storage from a commodity business into a strategic battleground. Seagate Technology Holdings plc STX and Western Digital Corporation WDC, two giants in hard disk drive (HDD) and storage solutions, are capitalizing on this mega-trend—but their paths diverge significantly in scope and risk profile.

The Market Backdrop: Why Storage Matters Now

Data isn’t just growing—it’s exploding. Industry projections reveal the global data storage market will balloon from $250.8 billion in 2025 to $483.9 billion by 2030, representing a 14% compound annual growth rate. The HDD segment alone is expected to reach $111.2 billion by 2035, up from $66.6 billion in 2025, at a more modest 5.3% CAGR.

Both companies are racing to capture hyperscaler demand for high-capacity nearline drives, but their competitive advantages and business structures tell different stories.

Western Digital’s Diversified Advantage

Western Digital’s recent strategic pivot—spinning off its SandDisk flash business in March 2025—has sharpened its focus on the high-growth HDD market while keeping a foot in the broader storage ecosystem. This separation enables independent valuation for each business segment and allows WDC to concentrate resources where the opportunity is greatest.

The results speak for themselves. WDC shipped 204 exabytes in its fiscal first quarter, a 23% year-over-year surge driven by AI hyperscaler demand and a shift toward higher-capacity drives. Its ePMR (energy-assisted perpendicular magnetic recording) products are gaining traction, with over 2.2 million units shipped in the September quarter. The company is also advancing its HAMR (heat-assisted magnetic recording) technology roadmap, with initial hyperscaler qualification targeted for the first half of 2026 and volume production set for 2027.

Financially, WDC generated $672 million in operating cash flow in the fiscal first quarter, a massive improvement from $34 million a year prior. This strength enabled $592 million in shareholder returns through buybacks and dividends, with $785 million returned since fiscal fourth quarter—underscoring disciplined capital allocation during a growth phase.

Interestingly, WDC also invested in Qolab to explore quantum computing applications and nanofabrication improvements. While unlikely to impact near-term earnings, this positions the company to benefit from longer-term technological shifts beyond core storage.

Seagate’s High-Capacity Dominance

Seagate is running a tighter, more focused playbook: dominating the high-capacity nearline HDD space that powers cloud data centers. The strategy is working. Data center revenue jumped 34% year-over-year to $2.1 billion in fiscal Q1, now representing approximately 80% of total sales, bolstered by long-term build-to-order contracts from global cloud customers extending into 2026.

Seagate’s technological edge comes from its HAMR (Mozaic) drive family. The company shipped over 1 million Mozaic HAMR drives in the September quarter alone, with five major cloud customers already qualifying the Mozaic 3+ variant and broader qualification anticipated by mid-2026. Mozaic 4+ drives are progressing through qualification, with volume ramps expected in H2 fiscal 2026.

The competitive advantage is clear: Seagate is targeting up to 10TB per disk through advances in aerial density, leveraging manufacturing expertise and silicon photonics. This roadmap delivers superior total cost of ownership versus alternative storage technologies—a compelling value proposition for customers facing exponential data growth driven by AI inference workloads.

For the fiscal second quarter, Seagate forecasts $2.7 billion in revenue (roughly 16% YoY growth) with non-GAAP operating margins near 30%. Capital expenditure remains disciplined at 4–6% of revenue. The company committed to returning at least 75% of free cash flow to shareholders, with $153 million in dividends and $29 million in buybacks during Q1.

Valuation and Earnings Momentum

Both stocks have surged recently—STX up 98.3% and WDC up 183.7% over the past six months—but their valuations diverge. WDC trades at 19.95x forward P/E, compared to 23.12x for STX, suggesting WDC commands a valuation discount despite recent outperformance.

Earnings revisions also tell a story. WDC’s fiscal 2026 consensus estimates were revised up 14.8% to $7.66 over the past 60 days, outpacing STX’s 6.7% upward revision to $11.26. This suggests analyst confidence is shifting toward WDC’s execution trajectory.

Risk Considerations

Seagate’s strength in nearline HDDs comes with exposure to concentration risk—80% revenue from data centers creates dependency on hyperscaler capex cycles. High debt levels also constrain financial flexibility for acquisitions and opportunistic shareholder returns during downturns. Forex volatility and supply-chain uncertainty pose additional near-term headwinds.

Western Digital, while more diversified, faces macro headwinds including tariff pressures and trade tensions. Its elevated debt load similarly limits strategic optionality. Both companies must manage manufacturing complexity as AI-driven storage demand intensifies.

The Verdict

For investors choosing between the two, the decision hinges on risk appetite. Seagate offers higher near-term upside through HAMR leadership and hyperscaler visibility, but carries greater leverage and volatility. Western Digital presents a more balanced proposition—diversified revenue streams post-spinoff, improving margin trajectory, long-term customer commitments, and better valuation multiples.

Both companies hold Zacks Rank #1 (Strong Buy) ratings, but WDC appears better positioned for resilience across multiple economic scenarios while maintaining meaningful exposure to the AI-driven data storage supercycle.