Western Digital and Seagate Were 2025’s Surprise AI Winners. 7 Stocks That Could Shock in 2026.

Demand for hard disk drives from Western Digital and Seagate has spiked in 2025. (Courtesy Western Digital)

Key Points

• Western Digital and Seagate Technology Holdings are up 303% and 232%, respectively, in 2025.
• Increased demand for high-capacity hard drives in data centers, driven by AI, has boosted these companies’ revenues and pricing power.
• Analysts suggest exploring networking companies like Ciena and Arista Networks, and optical component makers such as Tower Semiconductor and Corning for 2026 AI opportunities.

Chip makers, cloud giants, and even energy stocks have lapped up much of the attention in the artificial-intelligence trade. However, a pair of once-sleepy technology stocks have become AI winners.

Western Digital is the top performer in the S&P 500 in 2025, up 303%. Its competitor, Seagate Technology Holdings , ranks third in the index with a 232% gain. (Micron is in second place, and is up 238%.)

Western Digital and Seagate make hard drives—and demand for their highest-capacity, highest-margin drives at data centers has exploded.

AI is “fundamentally reshaping hard drive demand by elevating the economic value of data and data storage,” Seagate CEO Dave Mosley told Barron’s. “Every interaction drives the need to retrieve, process, and store more data.”

Western Digital declined to comment while in its pre-earnings “quiet period.”

Savvy investors know this story already: A 300% rise for a stock with a large market capitalization doesn’t often go under the radar. The real challenge is finding the next Western Digital or Seagate.

Analysts who spoke to Barron’s have some clues about why the stocks surged in 2025—and how to win the AI trade in 2026.

The data storage industry was in rough shape not long ago. Western Digital posted losses in fiscal 2023 and 2024 as revenue plummeted and inventory lingered on the shelves. Seagate managed a narrow profit in those years, but revenue had declined gradually over the previous decade.

The companies also missed out on the earliest rush of AI spending, which revolved around hyperscalers such as Microsoft and Alphabet.

“So much energy, so much IT spending was going into the hyperscale compute,” said Jim Kelleher, director of research at Argus Research. “Everything else was kind of on the wayside.”

That made valuations attractive as AI demand started to expand. Seagate traded at 10 times forward earnings at the start of 2025, down from a 37-times multiple a year before. Western Digital was even cheaper, trading at 7.4 times earnings to start the year.

Stronger pricing trends are another reason for the duo’s meteoric rise. After letting inventories swell at the beginning of the decade, both companies are being more disciplined with supply now, Steven Fox of Fox Advisors said.

Hard disk drives are a fraction of the cost of, say, an Nvidia server rack, and more efficient drives can save data centers money, Fox noted. That means Seagate and Western Digital can pitch higher prices to customers without much fuss.

“It’s not a big needle mover in the grand scheme of the cost of the data center,” Fox said.

It may not be too late to pick up Seagate and Western Digital. Mosley, the Seagate chief executive, told Barron’s that customers are continuing to ramp investments in AI, and new use cases, such video creation and AI agents, could spur further demand. Of the Wall Street firms polled by FactSet, 71% have Seagate at a Buy or equivalent rating, and 77% rate Western Digital a Buy.

But in a historically cyclical industry, the stocks have already priced in at least some of the current upcycle in demand, argued Mehdi Hosseini of Susquehanna.

“I’ve learned it the hard way not to argue for cycles to be different this time than prior decades,” said Hosseini, who has a Negative rating on Seagate shares and a Neutral rating for Western Digital.

For investors skittish about jumping in, there are other underpopulated corners of AI to explore. Kelleher, the Argus analyst, has Buy ratings on both Seagate and Western Digital, but he’s also bullish on networking companies like Ciena and Arista Networks in 2026.

As AI broadens out from large-language models and the hyperscalers who develop them, enterprises—and even countries—are building data centers to host AI capabilities in-house, Kelleher said. That requires data storage and the ability to deliver AI on secure networks through ethernet or optical networking.

Ethernet leader Arista, a Barron’s stock pick in June, has flown under the radar with a 19% gain this year. It’s one of Kelleher’s best bets for 2026, given its relatively low valuation.

Hosseini, the Susquehanna analyst, is a believer in the optical networking buildout in particular, and recommends looking at the makers of optical components. Tower Semiconductor, which produces silicon photonics, and Corning, which makes fiber, are Hosseini’s two top picks.

Investors dazzled by the pricing power of Western Digital and Seagate may like the electronics manufacturing services, or EMS, industry. That group includes Sanmina, Jabil, and Flex, which hyperscalers rely on for components in data centers. As server racks get more complex, the EMS companies can charge more, Fox of Fox Advisors told Barron’s.

“It’s kind of like the hard disk drive story,” Fox said, explaining that EMS companies can stack different solutions and expand margins while saving end users money.

Regardless of how investors choose to play the AI trade in 2026, the opportunities will be less obvious than in years past. At the highest end of the market, the so-called Magnificent Seven group of tech stocks has become perhaps the most crowded trade of the 21st century. Among the quieter names, good luck finding a Western Digital lookalike trading at 7 times earnings.

“It’s not going to be as easy,” Hosseini said of 2026. “You can’t just own stocks because of [the] AI theme. You have to be very selective.”

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