AI insights: Is Seagate Technology (STX) the perfect AI play?

What do OpenAI, Google, and Anthropic have in common? They all need hard drives.

Do AI chatbots like ChatGPT get caught up in the AI hype?

That’s how it feels after ChatGPT picked an AI-focused stock for the third time in four weeks for the AI Insights series.

This time around ChatGPT targeted data storage giant Seagate Technology (STX).

Despite the hype surrounding AI (and potential risk of a bubble), Seagate might still be the perfect play. It’s the old adage of selling picks and shovels when there’s a gold rush.

AI companies (and tech companies at large) need storage solutions, and Seagate is part of a duopoly (the other being Western Digital) that’s essentially cornered the market for storage.

Let’s dive in.

ChatGPT stock pick of the week: Seagate Technology (STX)

Here’s exactly what ChatGPT had to say this week:

A timely stock idea today is Seagate Technology (STX): shares are surging on strong results and sector momentum, positioning it as a beneficiary of AI-driven storage demand and an improving earnings outlook.

Seagate Technology (STX) at a glance

Our take

We’ve done a significant amount of reporting on Seagate over the years, and here’s Senior News Writer Dave Kovaleski with the latest:

Seagate Technology is another one of our favorite stocks. Seagate makes high-capacity hard disk drives and is a leader in data storage, particularly for AI data centers. Not only is it at the center of the AI economy, it is a dominant player in this space, part of a duopoly along with Western Digital (WDC). Seagate and Western Digital control about 80% of this growing market, with the market share split pretty much down the middle.

That would explain why its earnings have been surging and its stock price has been skyrocketing. Seagate stock is up a ridiculous 219% YTD and 171% over the past 12 months. It has averaged a 39% annual return over the past five years and 21% annual return over the past 10 years.

We’ve written about it twice in the past two months. In a story in October, we called it “one of the best AI stocks” and an “extremely attractive option” thanks to high earnings, industry status, and reasonable valuation at 25 times forward earnings. In a September story, we noted how analysts are bullish on the stock and suggested that it has “more room to run” with its wide moat in a booming industry.

What other experts are saying about Seagate

Seagate is currently ranked as a moderate buy. Despite the strong endorsement, it actually has a 12-month price target of $268, which is down slightly from where it is right now.

As you’d expect, most analysts believe Seagate is well-positioned to benefit from the ongoing AI boom. Both Seagate and its main rival, Western Digital, supply data storage solutions to a wide range of AI companies.

Of course when discussing Seagate, you’d be remiss to not acknowledge its chief rival in the storage space: Western Digital.

Western Digital is actually a compelling choice if you’re looking for an alternative to Seagate as it’s actually performed better over the last six months (although they are nearly the same YTD). Western Digital might be a slightly better value as its price-to-earnings ratio is just 22.

How did last week’s pick perform?

It hasn’t been an auspicious start for Comcast (CMCSA) in the AI Insights portfolio. Chart from TradingView.

Last week ChatGPT suggested buying low on multimedia megacorp Comcast (CMCSA), and the stock promptly dropped even lower.

It turns out the purchase was at the exact wrong time, as it missed a significant dip. On the bright side, the stock has since recovered most of the drop and is showing signs of life as it trends upwards.

The overall stock portfolio continues to be driven by the week #1 pick of AI breakout Micron Technology, which has risen an astounding 20% over the last four weeks. It just goes to show how strong AI-related companies are performing right now.

Here’s a look at where the AI Insights portfolio stands after four weeks:

AI insights portfolio

• Total invested: $300.
• Current market value: $320.89.
• Unrealized gains: 5.17%.

And here’s how the AI Insights compares to our control portfolio, which is comprised entirely of the Vanguard Total Stock Market Index Fund with purchases made at the exact same time frame.

Standard portfolio (100% VTI)

• Total invested: $300.
• Current market value: $301.68.
• Unrealized gains: 0.56%.