As the artificial intelligence (AI) boom enters the second half, look for some data storage and memory stocks to gain more traction. They’ve already caught quite a bit higher in the year’s first half. They’re still nowhere near as hot as the top GPU makers. Data storage plays are arguably relatively lukewarm, given the vast number of data centers likely to come online soon.
Undoubtedly, data centers need more than just a GPU to run at full speed. They also need storage units, high-performance dynamic random access memory (DRAM) chips, power supplies, cables, racks, liquid cooling tech and the expertise of a management team that knows how to put everything together efficiently.
Given how quickly some firms build their data centers, perhaps it’s time to give more love to the data storage plays. They’re not just making critical components of AI data centers; they’re innovating in their own right to pack more storage space in smaller volumes.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) is a memory chip maker that rode the AI wave to new all-time highs of over $153 per share in June. With MU stock more than doubling in the past year, it seems like the AI boom is already priced in and then some.
Though the company recently delivered in-line guidance that failed to delight investors, many analysts and pundits are sticking with the name, especially given the pace of new data center projects. You can have all the GPUs you want, but without high-performing memory, like the ones Micron makers, you simply do not have all the necessary components to build that data center.
It’s not just DRAM that could be flying off shelves, either. Micron’s solid state drives (SSDs) tailored to the data center also stand to heat up as the current phase of the AI data center boom plays out. All considered, MU stock is a solid memory play that looks tempting after a 14% dip.
Western Digital (WDC)
Western Digital (NASDAQ:WDC) is a data storage firm whose shares have also more than doubled in the past year. Unlike Micron, though, WDC stock still has room to run if it’s to eclipse all-time highs not seen in nearly a decade. Undoubtedly, data storage is a rather commoditized device, making Western Digital extremely sensitive to swings in demand.
With the AI data center boom picking up, things are looking up for Western Digital and its peers. And I feel that AI tailwinds are powerful enough to power WDC stock to new heights. Of course, the next cyclical downturn will hurt, but it may be a year or more off, especially as AI infrastructure spending stays elevated.
Western Digital will be ready to spin off its hard disk drive (HDD) and Flash businesses in a move that could unlock value. Wells Fargo (NYSE:WFC) analysts recently named WDC stock to their “Tactical Ideas” list as the second-half spin-off looms.
Seagate Technology (STX)
Seagate Technology (NASDAQ:STX) is another data storage firm poised to keep on winning as AI demand begets more demand for memory. The company has also been innovating greatly to make its offerings cheaper and more capacity-optimized.
The company’s Mozaic 3+ platform, which features heat-assisted magnetic recording (HAMR) tech, allows Seagate to pack more terabytes of storage in a smaller area. Through the impressive tech, Seagate can now offer drives (in the Exos family) with capacity points well above 30TB.
There’s no question that such “industry-first” innovations can set Seagate apart from the pack as it seeks to capture a bigger chunk of the data storage market while making the most of the AI data center boom. At 19.23 times forward price-to-earnings, perhaps STX stock is the best data storage stock out there.
On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
