Western Digital and Seagate Technology, the two dominant makers of high-capacity hard drives for AI data centers, have both posted triple-digit returns over the past three years. Comparing growth rates, margins and valuation, Western Digital's cheaper P/E ratio gives it a slight edge as the better long-term buy, according to the Motley Fool.
Western Digital looks like the better long-term buy of the two leading AI storage stocks, largely on valuation, even though Seagate currently shows faster growth.
The two companies make high-capacity hard disk drives for AI computing and data centers, and both sit in a supercycle where demand outpaces supply. That has driven Seagate stock up 235% year to date and 292% over the past 12 months. Over the same stretch, Western Digital stock has gained 164% year to date and 278% over the past 12 months.
HAMR adoption splits the two
Seagate has already mostly shifted to heat-assisted magnetic recording, or HAMR, technology, which stores more data than the older energy-assisted perpendicular magnetic recording method. Western Digital plans to roll out its own HAMR drives starting in the first half of 2027, CEO Irving Tan said on the company's recent earnings call.
Its CFO, Gianluca Romano, said 40% of its shipments in the quarter ended in June were HAMR drives, with management targeting 70% of shipments as HAMR by June 2027. According to Seagate CEO Dave Mosley: "HAMR's going to completely take over the portfolio."
Seagate's growth is running slightly ahead
Seagate posted sales growth of 50% in its most recent quarter, compared to 44% for Western Digital, and its operating margin reached 43% against 41.7% for Western Digital. For the current quarter, Seagate is targeting 12% revenue growth while Western Digital expects 9% sales growth.
Tan attributed the gap to several factors, including the timing and pricing of long-term agreements and new product launches, after an analyst asked about the divergence on the earnings call. He said the company started shipping higher-capacity 40-terabyte ePMR drives last quarter and is targeting 44-terabyte HAMR drives next year.
Western Digital's cheaper valuation tips the scale
Western Digital trades at 17 times earnings and 23 times forward earnings, with a five-year PEG ratio of 0.90. Seagate is more expensive at a P/E ratio of 66 and a forward P/E of 25, though its five-year PEG is lower at 0.53.
Analysts rate Seagate a buy at an 83% rate, with a median price target of $1,165 implying 28% upside. Meanwhile, 76% of analysts rate Western Digital a buy, with a median target of $668 implying 50% upside. Both companies are booking long-term agreements out to 2028 and 2029.
Source: The Motley Fool
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