Demand from generative-AI data centers drove a surge in nearline HDD revenue and margins for Seagate and Western Digital in 2025—shares have climbed roughly 257% and 316% respectively—while both companies report supply tightness (WDC expects constraints through mid‑2027; Seagate says capacity largely committed through 2026) and are cautiously adding capacity to preserve pricing. However, big tech customers are increasingly buying NAND/SSD capacity, which—because SSDs offer smaller footprint, lower power use, faster access and longer lifespans—poses a credible substitution threat that could blunt HDD pricing power if NAND supply ramps faster than HDD expansion. Given the cyclical, easily substitutable nature of HDDs and forward P/Es of about 27 (Seagate) and 24 (Western Digital) versus mid‑to‑high teens for NAND players like Sandisk and Micron, the article warns valuations look rich and that earnings multiples could contract and trigger sharp share corrections in 2026–2027 if SSD adoption accelerates.
Generative-AI-driven demand for nearline storage produced pronounced revenue and margin expansion for Seagate and Western Digital in 2025, with shares up roughly 257% and 316% year-to-date respectively; both companies report constrained supply (WDC expects tightness through mid-2027; Seagate says capacity is largely committed through 2026) and are adding capacity cautiously to preserve pricing. The business dynamic is one of short-term pricing power due to supply scarcity, but the firms face a capacity-timing trade-off: building too much capacity risks eroding prices if demand softens. Large cloud and AI customers have materially increased purchases of NAND/SSD capacity, pushing NAND prices higher and benefiting Sandisk and Micron, and SSDs offer concrete operational advantages (smaller footprint, lower power, faster access, potentially longer life) that can offset higher up-front costs for data centers. That substitution risk means HDD demand growth could be truncated if NAND capacity scales faster than HDD additions, directly threatening the current margin cycle. Market pricing appears to embed continuation of the 2025 cycle: forward P/Es near 27 (Seagate) and 24 (Western Digital) contrast with mid-to-high-teens multiples for NAND players, but HDDs remain highly cyclical and commoditized. The article flags a credible downside scenario in 2026–2027 where SSD-driven cannibalization prompts analyst cuts and significant multiple compression, consistent with the moderately negative sentiment signal.
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moderately negative
Sentiment Score
-0.50
Ticker Sentiment
