AI Stocks Surpassing Palantir in 2025

In 2025, AI hardware manufacturers are outperforming Palantir Technologies in stock growth, driven by the rapid expansion of AI data centers and the surging demand for nearline storage solutions. While Palantir has seen significant gains due to the broader adoption of its AI software, hardware companies supplying critical components for AI infrastructure have experienced even more impressive earnings growth, with some achieving triple-digit increases.

Palantir Technologies, a leader in AI software, has benefited from the widespread adoption of its platform among enterprise clients. Its software has enabled businesses to leverage AI for various applications, resulting in substantial revenue growth and improved operating margins. This success has been reflected in its stock performance, which has surged by 143% this year. However, the spotlight is now shifting to AI hardware manufacturers, whose stocks have risen even higher due to the increasing demand for AI-specific hardware.

The Rise of AI Hardware Manufacturers

As major tech companies invest heavily in building and equipping large-scale AI data centers, the demand for specialized hardware has skyrocketed. Two prominent AI hardware companies have seen their stocks outperform Palantir, with gains exceeding 185% in 2025. These companies produce essential components such as GPUs, AI accelerators, and storage solutions that are critical for the operation of AI data centers.

While GPUs and AI accelerators are the primary focus of investment, other components like nearline storage have also become increasingly important. Nearline storage, which provides affordable and high-capacity storage solutions, is essential for managing the vast amounts of data required for AI language models and other applications. Hard drive manufacturers Seagate Technology and Western Digital have reported significant increases in demand for their nearline storage products, with Seagate seeing a 52% year-over-year rise in nearline capacity shipments and Western Digital reporting a 36% increase.

Financial Performance and Growth

The surging demand for AI hardware has translated into strong financial performance for companies like Seagate and Western Digital. Both companies have reported substantial revenue growth and margin expansion, driven by the increasing demand for high-capacity storage solutions. Seagate's gross margin grew by 7 percentage points last quarter, while Western Digital's increased by 6.1 percentage points. This combination of rising revenue and expanding margins has led to significant earnings growth, with Seagate's earnings per share increasing by 147% year over year.

Western Digital, which spun off its flash memory business in February to focus more on hard drive opportunities, has also seen impressive growth. Its operating income for the remaining business grew by 147% year over year last quarter. The strong financial performance of these companies highlights the growing importance of AI hardware in supporting the rapid expansion of AI applications.

Cyclicality and Long-Term Prospects

While the exceptional earnings growth of AI hardware manufacturers has driven their stock performance, it is important to note that the hard drive sector is highly cyclical. Earnings typically rise as a cycle progresses but eventually decline as the cycle ends. However, growing long-term spending commitments from major AI players may provide reassurance that this cycle will last longer than usual. Companies like OpenAI plan to invest $400 billion in data centers over the next three years, and other major tech firms have consistently raised their spending forecasts.

Hard drives are expected to maintain their cost advantage over other storage solutions, such as solid state drives (SSDs), which are significantly more expensive at the data center level. Seagate anticipates that its heat-assisted magnetic recording (HAMR) technology, which allows for greater storage capacity, will further expand its advantage in 2026. Western Digital is also working on implementing its next-generation technology, though it is approximately six months behind Seagate.

Investment Considerations

Seagate and Western Digital's stocks have forward P/E ratios of 22 and 18, respectively. While these ratios may seem attractive compared to other AI stocks and their current earnings growth, they are relatively high when compared to the stocks' historical values. Much of the price increase this year has been driven by multiples expansion, and while the outlook for both companies remains positive, investors may want to wait for a better opportunity to invest.

In conclusion, AI hardware manufacturers are outperforming Palantir in 2025, driven by the soaring demand for AI data center components and nearline storage solutions. While the sector is cyclical, long-term spending commitments from major AI players and the continued cost advantage of hard drives suggest a positive outlook for companies like Seagate and Western Digital.