Alphabet Inc. (NASDAQ:GOOG) is removing the cost barrier to Google Vids, allowing anyone with a Google account to use its AI video generator for free through the Gemini Omni 1.1 Flash model. Every video created, stored, and delivered adds to the growing volume of data that Western Digital Corporation (NASDAQ:WDC) and Seagate Technology Holdings plc (NASDAQ:STX) are positioned to handle. The challenge is that both companies are already sold out for years, while investors have driven their stocks up by hundreds of percent on this same demand story. Demand is not the issue; the question is how much of that opportunity is already reflected in the stock prices.
Alphabet was also recently named one of Retail Investors’ 2 Favorite AI Stocks for the Long Term, but does its current valuation still leave enough upside after the stock’s rally?
Free AI Video Means More Data to Store
Google Vids allows users to create 1080p HD videos using set durations, avatars, and prebuilt templates for product launches and ads. All of these AI-generated videos carry a SynthID watermark. That creates the kind of large, persistent data that nearline hard drives are designed to store. Western Digital’s cloud revenue represented 89% of its latest quarter, while total exabytes shipped grew 22% year-over-year, with nearline products driving the increase. CEO says the company is sold out for calendar year 2026. Seagate is similarly constrained, with nearly all nearline capacity committed into calendar 2028 and a long-term revenue growth target of at least 20%.
The Stocks Have Already Run on This Exact Thesis
Western Digital has gained roughly 330%, and Seagate has about 305% over the past year, well ahead of the industry’s 45% revenue growth as investors price in continued AI data demand. But being sold out works both ways. Consumer AI video may create incremental storage demand without producing short-term sales, while Seagate’s management has tied the cycle to hyperscaler training and inference rather than consumer AI tools.
Google currently trades at a forward P/E of 21.8x, compared with S&P 500’s forward P/E ratio of 19.2x. Consensus currently projects earnings growth of about 9.3% in 2026, followed by roughly 27.6% growth in 2027. With Google and other hyperscalers committing heavily to AI infrastructure, the valuation leaves little room for error if these investments fail to translate into sustained earnings growth. The stock’s premium valuation reflects optimism around the company’s AI opportunity, but that premium will depend on Google turning its heavy spending into meaningful earnings growth.
Google’s move reinforces the data-driven foundation of the storage cycle. But WDC and STX already have capacity booked through 2026-2027, and their valuations reflect years of flawless execution. That could leave the companies benefiting from the rising demand more than shareholders benefit from the stocks going forward.
Institutional interest in Google is strengthening, with the number of hedge funds holding the stock increasing from 265 at the end of Q1 2026 to 275 at the end of Q2 2026. The increase indicates that professional investors are adding exposure as the company pushes further into AI. Its decision to offer free AI video generation to every Google account holder adds another layer to its ecosystem and supports the data-driven moat behind its advertising business.
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