Seagate Technology Holdings plc (NASDAQ:STX) closed at $848.99 on October 2, down 10.21% after Toshiba said it would spend to double its hard drive production capacity. Western Digital Corporation (NASDAQ:WDC) fell by almost exactly as much on the same news.
Both had been among the best-performing stocks in the market. That is exactly why one competitor’s spending plan mattered so much.
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A Shortage Lasts Only Until Somebody Builds More:
The rally in these two shares was never really about hard drives. It was about scarcity. AI systems generate enormous quantities of data that has to be stored somewhere cheap. Demand ran ahead of what the industry could supply, and prices rose because buyers had nowhere else to go.
Seagate is up 249.62% over twelve months on that. Western Digital is up 231.49%, and it fell 10.22% alongside Seagate.
Scarcity pricing has one weakness. It invites capacity, and capacity takes time to arrive but arrives eventually.
Toshiba is a smaller player in drives than either of these two. The market reaction was not about Toshiba’s volumes. It was about the signal. If one competitor has decided the economics justify doubling output, the others are making the same calculation.
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Both Were Priced for the Shortage Lasting:
Look at what each stock already assumed. Seagate trades at 66.17 times trailing earnings and 96.52 times book value. A price-to-book figure that high only makes sense if the current level of profit is treated as the new normal.
Western Digital carries a different warning. Its trailing multiple is 17.60 times, and its forward multiple is 22.83 times.
That is the wrong way round. A forward multiple above the trailing one means the market already expects earnings to fall, before Toshiba said anything.
The reason is visible in the margins. Western Digital’s net margin of 72.95% sits well above its operating margin, which means a large one-off gain is sitting inside the reported profit. Strip that out, and the trailing multiple is not 17.60 times at all.
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The Valuation Case:
Seagate closed at $848.99 and Western Digital at $415.29, both on October 2. Revenue grew 48.50% at Seagate and 43.80% at Western Digital in the most recent quarter, and those rates were produced by a shortage that a competitor has now committed to easing.
The forward multiples tell you the market never believed it would last. Seagate drops from 66.17 times trailing to 25.71 times forward, and that collapse in the multiple is the market pricing a return to normal earnings.
Leverage separates them. Seagate carries a debt-to-equity ratio of 179.88% against 13.44% at Western Digital, so the same downturn would be felt very differently.
Seagate turns 26.11% of every revenue dollar into net profit. For a company stamping out a physical commodity in a famously cyclical industry, a margin like that is the mark of a shortage rather than of a business model.
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Conclusion:
The businesses are performing. Revenue is growing at both, Western Digital carries almost no debt, and AI storage demand is real rather than imagined. However, a 96.52 times book multiple and a forward multiple above the trailing one are both ways of saying the market was already nervous. The number to watch is industry capacity, because the shortage was the whole thesis.
Market Sentiment:
Seagate Technology Holdings plc (NASDAQ:STX) was held by 131 hedge funds with a combined stake value of about $17.60 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 93 hedge fund holders with a cumulative investment value of around $6.08 billion in the previous quarter.
Western Digital Corporation was held by 98 hedge funds with a combined stake value of about $9.94 billion at the end of the same quarter. This is up from 83 hedge fund holders with a cumulative investment value of around $6.57 billion three months earlier.
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This article is originally published at Insider Monkey.
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