Seagate Tech and Western Digital lead the rise in US stocks! Is it AI spillover or signs of a bubble?

In the current wave of AI sweeping the globe, those traditional hardware companies that were once overlooked are becoming the brightest stars in the U.S. stock market with astonishing gains. But is this a true reflection of the "spillover effect" of AI infrastructure construction, or is it the last frenzy before the bubble bursts?

Driven by the AI boom, the most eye-catching stars in the U.S. stock market are not cutting-edge technology companies, but a group of traditional tech firms. Seagate Tech has surged 156% this year, becoming the best-performing stock in the S&P 500 index, while its competitor Western Digital ranks third with a 137% increase, and Micron Tech comes in fifth with a 93% rise.

According to reports, these "boring" companies, established before Facebook founder Mark Zuckerberg and OpenAI CEO Sam Altman were born, are benefiting from massive investments in AI infrastructure. Large tech companies invest hundreds of billions of dollars annually in semiconductors, networking equipment, and data center power supplies to support the training of large language models and the operation of AI workloads.

However, there is a divide on Wall Street regarding this phenomenon. Bulls believe it demonstrates the driving effect of AI computing demand across a wide range of business sectors, while bears warn that it is the latest sign of a stock market bubble. Michael O'Rourke, chief market strategist at Jonestrading, stated:

"When people start looking for secondary and tertiary trading opportunities, it indicates that the market cycle has entered a very late stage."

Traditional Storage Giants Ride the AI Wave

Hard disk drive technology dates back to the 1950s, when devices weighed over 2,000 pounds and could only store 5 megabytes of data. Today, personal computer hard drives can reach up to 2TB in capacity and weigh less than 1.5 pounds. Seagate and Western Digital are focusing on developing massive data storage solutions required for training large language models.

Since the release of ChatGPT nearly three years ago, investments in AI infrastructure have continued to pour in. Large tech companies like Microsoft and Alphabet invest hundreds of billions of dollars annually in semiconductors, networking equipment, and data center power to train large language models and run AI workloads.

This wave of spending has not only pushed Nvidia and TSMC's market values to over a trillion dollars but has also benefited previously obscure storage device manufacturers. Micron's high-bandwidth DRAM memory has become a core component of AI computing, yet despite its technological significance, these companies struggle to spark the interest of ordinary investors.

Kim Forrest, founder of Bokeh Capital Partners, stated, "When I talk about them on the phone, I can hear people zoning out. They prefer to talk about flying cars and robotic dogs."

Despite the soaring stock prices, these three companies still have relatively reasonable valuations. At the beginning of the year, Western Digital's price-to-earnings ratio was less than 6 times, while Seagate and Micron were around 10 times. Although valuations have increased, they remain below the expected price-to-earnings ratio of 23 times for the S&P 500 index.

Benchmark Co. analyst Mark Miller raised Seagate's target price to Wall Street's highest at $250, indicating over a 13% upside from last Friday's closing price of $221. He believes that considering the strong outlook for product demand, Seagate's 20 times valuation level remains attractive

Market Bubble Theory Continues to Ferment

Wall Street is generally optimistic about these three stocks, but the speed of price increases has exceeded analysts' expectations. Seagate's trading price is more than 20% above the average target price, Western Digital exceeds by more than 10%, and Micron is slightly above expectations.

For trader O'Rourke, who has experienced the internet bubble, the current phenomenon is concerning. He stated:

"Historically, any cyclical business typically peaks at low multiples and bottoms out at negative earnings. The recommended buying opportunity is when the cycle reverses and the company is losing money, while the selling opportunity is when the multiples look healthy."

The AI boom is also driving stock prices in other traditional industries to soar.

Power producer Vistra Corp has risen 53% this year, having previously surged 258% in 2024;

Chip manufacturer Broadcom has a market capitalization of $1.6 trillion;

Oracle has become the tenth largest company by market capitalization in the S&P 500 due to demand for cloud computing services, soaring 36% in a single day after its earnings report on September 9, reaching a valuation not seen since the internet bubble.

Forrest believes that AI is currently being overhyped, much like internet technology, and the development of actual application cases will take longer than most people expect. She warns:

"If you are buying products specifically for AI or data centers, anything on a straight upward trajectory could become a cautionary tale."