The big picture: For a sector often written off as unglamorous, a new wave of demand driven by AI is emerging for hard disk drives. A recent slowdown in orders from hyperscale data center operators may create uneven results in the near term, and the industry still depends on a relatively narrow set of customers. Still, analysts argue that the structural demand shift is undeniable. As Western Digital's finance chief Kris Sennesael noted at a recent Goldman Sachs conference: "You don't have AI without data, and you don't have data without storage."
Amid surging demand for semiconductors and AI software, the once-overlooked hard drive is commanding fresh attention. Long overshadowed by flash storage and declining shipments, high-capacity hard-disk drives are seeing a revival as artificial intelligence reshapes the economics of data storage.
The two dominant suppliers, Western Digital and Seagate Technology Holdings, have emerged as unlikely beneficiaries of the data boom, posting some of their strongest revenue growth in years.
For much of the past decade, hard drive makers were in decline as consumer demand shifted toward solid-state drives and cloud adoption proved cyclical. That changed when AI companies began building and training massive models dependent on exabytes of data. Now with the upper hand, their poised to raise prices by as much as 30 percent.
Western Digital reported shipping 190 exabytes in its latest quarter, up 32 percent from a year earlier, while Seagate shipped 45 percent more. Both companies recorded revenue gains of roughly 30 percent over the same period, a rare surge for an industry long considered mature.
The renewed momentum contrasts with the industry's pandemic experience. Storage demand spiked in 2020 as remote work and online learning took off, only to collapse when offices and schools reopened. Gartner estimates global hard-drive revenue fell nearly 30 percent in 2023. This time, analysts see more staying power. Unlike the temporary pandemic surge, AI requires vast troves of data to be not only collected but stored indefinitely.
For example, Google reported that within just three months of launching its Flow video tool in May, users had already created 100 million AI-generated videos. That flood of new content adds to the already massive storage demands created by training and operating large-scale AI systems. Gartner now forecasts global hard-drive revenue will reach about $24 billion next year, twice the level seen during the industry's downturn in 2023.
Cloud computing is also fueling the growth, with cloud customers accounting for 90 percent of Western Digital's revenue in the most recent quarter.
Limited competition further strengthens the industry's position. Alongside Toshiba, Western Digital and Seagate effectively dominate the global high-capacity drive market. Both companies are investing in heat-assisted magnetic recording (HAMR), a next-generation technology capable of pushing storage beyond 30 terabytes per drive. Seagate has already begun shipments, while Western Digital expects to deploy the technology within the next two years. Executives argue these advances will be difficult for new rivals to replicate.
The persistence of hard drives in data centers is also an economic story. Solid-state drives offer superior performance but remain far more expensive to purchase and operate. HDDs still account for 80 to 90 percent of total storage capacity in data centers. That cost advantage, coupled with AI's long-term storage requirements, ensures hard drives retain staying power even as broader computing infrastructure evolves.
Pricing trends offer another sign of stability. Western Digital and Seagate have begun striking longer-term supply deals with cloud and AI customers, in some cases locking in pricing for a year or more. This marks a shift from prior cycles, when drive makers were forced to sell into cutthroat spot markets. The improved visibility has already lifted profitability: industry gross margins have doubled over the past two fiscal years to about 40 percent.