AI Stocks Beating Palantir in 2025

AI Stock Growth in 2025: Hardware Manufacturers Lead the Way

In 2025, AI stocks have emerged as a dominant force in the market, with hardware manufacturers such as Seagate and Western Digital outpacing even industry giants like Palantir. This surge is driven by the escalating demand for data storage solutions, essential for the expanding infrastructure of AI data centers. As businesses increasingly adopt AI technologies, the need for robust hardware to support these systems has become critical, propelling the stock values of key suppliers.

Palantir Technologies, a leader in AI software, has seen substantial growth as its Artificial Intelligence Platform (AIP) gains traction among enterprise clients. This adoption has translated into significant revenue increases and improved profit margins, fueling a 143% rise in its stock value this year. However, the spotlight has shifted to AI hardware suppliers, whose stocks have surged over 185%, outperforming Palantir. This trend highlights the pivotal role of hardware in the AI ecosystem.

The Role of AI Hardware in Data Centers

While GPUs and AI accelerators often steal the limelight, the backbone of AI infrastructure lies in data storage. As developers create larger and more complex language models, the demand for efficient and cost-effective storage solutions has skyrocketed. Nearline storage, which balances access speed and cost, has become indispensable for managing the vast amounts of data required for AI operations.

Hard drives remain the most cost-effective option for nearline storage, despite the rise of solid-state drives (SSDs) in personal computing. SSDs, while faster, are significantly more expensive, costing seven to eight times more for the same storage capacity. This economic disparity has positioned hard drive manufacturers like Seagate and Western Digital at the forefront of the AI hardware market, as data centers prioritize scalability and affordability.

Seagate and Western Digital: Driving AI Storage Solutions

Seagate and Western Digital have reported impressive growth in nearline storage shipments, with Seagate achieving a 52% year-over-year increase and Western Digital a 36% rise. This surge in demand has translated into substantial revenue growth and expanded profit margins for both companies. Despite producing interchangeable products, their limited production capacity has allowed them to exert pricing power, further boosting their financial performance.

Seagate's gross margin increased by 7 percentage points last quarter, while Western Digital's rose by 6.1 percentage points. These improvements have contributed to significant earnings growth, with Seagate's earnings per share climbing 147% year over year and Western Digital's operating income increasing by the same percentage following the spin-off of its flash memory business.

The exceptional earnings growth of these companies explains their stock performance this year. However, investors should be mindful of the cyclical nature of the hard drive industry. While current trends are favorable, historical patterns suggest that earnings may eventually decline as fixed costs and research expenses outpace revenue. Nonetheless, long-term spending commitments from major AI players like OpenAI, which plans to invest $400 billion in data centers over the next three years, could extend this growth cycle.

Future Prospects for AI Hardware

Looking ahead, hard drives are expected to maintain their price advantage, with Seagate anticipating further improvements in 2026 through its heat-assisted magnetic recording (HAMR) process. Western Digital is also advancing its next-generation technology, though it trails Seagate by approximately six months. These innovations will likely reinforce the dominance of hard drive manufacturers in the AI hardware market.

Seagate and Western Digital's stocks currently have forward P/E ratios of 22 and 18, respectively. While these valuations may seem modest compared to other AI stocks, they are relatively high compared to historical averages. Much of this year's price increases have been driven by multiple expansions, and while the outlook remains positive, investors may seek more favorable entry points before committing.

Conclusion

The AI stock market in 2025 is characterized by the rise of hardware manufacturers, with Seagate and Western Digital leading the charge. As AI technologies continue to evolve, the demand for robust data storage solutions will only grow, solidifying the importance of these companies in the AI ecosystem. While Palantir remains a key player, the spotlight has shifted to the unsung heroes of AI infrastructure, highlighting the critical role of hardware in driving the future of artificial intelligence.