Strong earnings from data storage firm Seagate Technology reassured investors that the AI infrastructure boom remains on track, reversing a sector-wide selloff.
Back
Back
Seagate's 17% Surge Revives Memory Stocks After AI Scare
Memory and data storage stocks rebounded sharply Wednesday after Seagate Technology’s (STX) strong earnings and guidance signaled robust, ongoing demand from the artificial intelligence sector, easing fears of a market-wide slowdown. The results provided a powerful counter-narrative to recent concerns about the pace of AI development.
"The economics (total cost of ownership) still favor HDDs over SSDs for workloads where controlling costs is important while immediate read access is not," Morningstar analyst Eric Compton said in a recent note, highlighting the durable demand for nearline data center storage.
Seagate shares rallied 17% in premarket trading to $678 after the company beat third-quarter earnings and sales estimates and issued a strong outlook for its fiscal fourth quarter. The positive sentiment lifted peers, with rival hard-drive maker Western Digital (WDC) jumping 9% to $426.35 and flash-memory supplier Sandisk (SNDK) rising 4.9%. Memory-chip maker Micron Technology (MU) also added 2.6% after D.A. Davidson initiated coverage with a Buy rating and a $1,000 price target.
The recovery follows a Tuesday selloff triggered by a Wall Street Journal report that ChatGPT developer OpenAI had missed key growth targets, which had spooked investors banking on a massive, multi-year AI infrastructure build-out. Seagate's results suggest that demand for mass data storage, a critical component of that build-out, is not dependent on the fortunes of a single AI company and remains structurally strong.
Data Center Demand Drives Outlook
The core of the bullish thesis rests on the insatiable appetite for data storage from cloud and AI data centers. While solid-state drives (SSDs) are known for speed, traditional hard disk drives (HDDs) from Seagate and Western Digital offer a more cost-effective solution for the vast archives of data required for training AI models, a category known as nearline storage.
The HDD market has consolidated into a three-player oligopoly consisting of Seagate, Western Digital, and a distant Toshiba, giving the leaders significant pricing power. Morningstar recently rerated Seagate shares higher, setting a fair value estimate of $117, citing a strong pricing environment with high multiyear visibility. This market structure allows the companies to manage supply and command higher prices, especially as demand for high-capacity drives accelerates.
The positive sentiment around AI infrastructure was not limited to storage. Bloom Energy (BE), a fuel-cell manufacturer, also reported blowout earnings and raised its guidance, citing demand from data centers, sending its shares up over 10%. This indicates a broader capital investment cycle in all aspects of AI infrastructure, from power to storage. For investors, Seagate's performance serves as a reminder that the AI trend is a complex ecosystem with multiple beneficiaries beyond high-profile chip designers like Nvidia. The foundational layers of data storage and power are proving to be equally critical and profitable investments.
This article is for informational purposes only and does not constitute investment advice.
[1] Western Digital Surges. How Sandisk, Memory Stocks Are Riding the OpenAI Scare. - Barron's[2] Seagate stock rallies on as AI stock's earnings crush targets[3] Rerating Seagate Shares Higher as Pricing Environment Is Strong With High Multiyear Visibility[4] Seagate stock jumps after Q3 beat-and-raise[5] Live: Will Bloom Energy Smash Q1 Earnings After the Bell Tonight?
