The Resurgence of Data Storage in the Age of Artificial Intelligence

Hard drives, once considered a relic of the tech world, are experiencing a surprising revival driven by the explosive growth of artificial intelligence. As AI systems require vast amounts of data for training and operation, the demand for digital storage has surged, benefiting companies like Seagate and Western Digital. These two industry leaders have reported significant revenue increases, with both seeing around a 30% rise in their latest quarters.

The AI boom has created a unique scenario where companies are not only storing more data but also retaining it for longer periods, unlike previous tech transitions where storage was often repurposed. This shift has led to a steady increase in hard drive shipments, with Western Digital shipping 190 exabytes of storage—up 32% year-over-year—and Seagate shipping 45% more in the same period.

The surge in AI-related data storage needs has also led to a significant increase in the price of higher-capacity drives. According to Gartner, global hard-drive revenue is expected to reach roughly $24 billion next year, more than double the $12 billion recorded in the 2023 downturn. This growth is being fueled by the increasing use of AI in various industries, from content creation to autonomous systems, all of which require massive amounts of storage.

For example, Google recently reported that users of its Flow filmmaking tool had created 100 million AI-generated videos in just three months since its May launch—requiring tons of storage capacity. This kind of data generation is a key driver of demand for hard drives, as AI models not only consume data but also produce vast amounts of it in the form of text, images, and video.

Despite the growth, investors have been cautious, with both companies’ stock valuations still lagging behind the tech-heavy Nasdaq index. Western Digital trades at about 16 times forward earnings, while Seagate has a multiple of 20 times. These valuations, while not bargain-basement, do not yet reflect the full potential of the opportunity before them.

The companies are gaining more leverage over their customers, particularly in the cloud computing sector, which now accounts for 90% of Western Digital’s revenue. This shift has given them the confidence to forecast an expansion in gross profit margins, which have already doubled in the past two fiscal years to roughly 40%.

Looking ahead, both Seagate and Western Digital are advancing toward a new storage technology called heat-assisted magnetic recording (HAMR), which promises larger-capacity drives. Seagate is rolling out HAMR now, while Western Digital is set to do so in a couple of years. This innovation, along with the continued reliance on hard drives in data centers—where they still account for around 80% or 90% of data storage—positions the companies well for sustained growth in the AI-driven era.

Moreover, the shift toward AI is not just increasing the volume of data but also the complexity of data storage needs. AI models are becoming more sophisticated, requiring not just more storage but also more efficient and reliable storage solutions. This has led to increased investment in research and development by hard drive manufacturers to improve performance, reliability, and capacity.

Another factor driving the resurgence is the continued reliance on hard drives in data centers. Although solid-state drives (SSDs) are faster and are increasingly used in high-performance computing, they are significantly more expensive to manufacture and operate. As a result, hard drives remain the preferred choice for large-scale data storage, where cost efficiency is a priority.

As the AI revolution continues, the role of hard drives is becoming more critical than ever. While the future of AI remains uncertain, one thing is clear: the demand for storage is not just growing—it is evolving. The companies that can meet this demand with innovation and scale may find themselves at the center of the next tech revolution, even if it’s not as glamorous as the latest AI startup or chipmaker.