Data storage giants Seagate and Western Digital poised for profit surge amid AI-driven supply crunch

The artificial intelligence boom is creating a structural shortage in hard disk drive supply that is positioning Seagate Technology and Western Digital for substantial profit growth. Bank of America analyst Wamsi Mohan notes that demand from data centres for high-capacity storage continues to exceed supply, granting the industry's major players significant pricing power. This dynamic is underpinned by the fact that hard disk drives remain the most cost-effective method for storing the vast datasets required to train and manage large-scale AI models.

Mohan forecasts that Seagate earnings could nearly double to $45 per share by 2028, with a price target raised to $700. For Western Digital, the analyst predicts earnings may reach $33 per share, setting a new price target of $495. These projections rely on the continued dominance of an oligopoly structure within the sector, which limits the threat of new entrants and allows existing firms to maintain robust margins despite the competitive landscape.

Recent financial results have already validated the bullish outlook for these companies. Seagate reported fiscal 2025 annual revenue of $9.10 billion, representing a 39 per cent year-on-year increase, while its adjusted earnings per share of $4.10 beat market expectations. Similarly, Western Digital posted fiscal 2025 annual revenue of $9.52 billion, a 51 per cent rise, with adjusted earnings per share of $2.13 surpassing analyst estimates.

Market sentiment has responded vigorously to these fundamentals, with Seagate shares surging nearly 600 per cent over the past 12 months and Western Digital stock jumping roughly 850 per cent. The companies are also benefiting from a strategic shift in their business models, moving away from unpredictable hardware sales towards a more stable framework based on long-term contracts and recurring demand from cloud infrastructure providers such as Amazon, Microsoft and Google.

Technological advancements are further supporting the growth trajectory, particularly through the adoption of heat-assisted magnetic recording technology. This innovation allows manufacturers to increase storage capacity and reduce material costs by making the disk surface more receptive to data bits without requiring additional heads or media. However, investors remain mindful of potential headwinds, including a possible slowdown in cloud spending, delays in the rollout of this technology, or a return to aggressive price competition.