Why Seagate Technologies Rallied Double Digits This Week

Key Points

• Seagate received several price target hikes this week.

• Channel checks show prices for storage are rising to satisfy artificial intelligence (AI) inference demand.

• Seagate's 155% year-to-date returns have trounced even more popular AI names.

• 10 stocks we like better than Seagate Technology Plc ›

Shares of hard disk drive manufacturer Seagate Technology (NASDAQ: STX) rallied this week, up 11.8% this week through 1:54 p.m. ET Friday, according to data from S&P Global Market Intelligence.

Seagate had a relatively quiet week in terms of company-specific news; however, positive data around demand for storage at the edge due to a spike in artificial intelligence (AI) inferencing has led to several analyst upgrades this week.

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Seagate gets massive upgrades

Artificial intelligence and semiconductor-related stocks were already on the rise this week, following the last week's blockbuster AI guidance from Oracle, along with the Federal Reserve's interest rate cut this week -- the Fed's first cut since last year.

Lower interest rates generally mean lower costs of capital, and large tech stocks are spending boatloads of cash on AI infrastructure this year. So lower interest rates bring the prospects of only fueling that spending even more.

Meanwhile, the composition of that infrastructure is changing, moving from training generative AI models to inferencing, which is the use of those models in everyday tasks.

Inferencing is leading to a new wave of investment in edge storage, where Seagate's HAMR technology leads the industry in terms of squeezing more TB of data onto each disk. That led to a couple of sell-side analysts upgrading the stock this week.

On Monday, Bank of America upgraded its price target on Seagate from $170 to $215 while reaffirming its "buy" rating, based on a more optimistic outlook for AI spending. Then today, Mizuho analyst Vijay Rakesh increased his target on Seagate by an even greater amount, from $160 all the way to $245. Rakesh's upgrade follows channel checks indicating strong demand and rising prices for both hard disk drives and NAND flash.

Image source: Getty Images.

But remember: Storage is cyclical

After this week's surge, Seagate is up a whopping 155.4% year to date, exceeding the gains of many more popular AI leaders.

And while things look rosy today, the memory and storage industry has been quite cyclical in the past, leading to a boom-and-bust dynamic. We're clearly in a "boom" stage right now, and the length of that stage will be determined by how long the AI infrastructure build-out will take. Many believe it will take several years, but investors should be aware that any macroeconomic hiccups or flagging demand for AI services could lead to severe pullbacks.

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Bank of America is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients has positions in Bank of America. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.