Cloud Computing and IoT Drive Storage Device Stocks to New Heights – WDC and STX Lead 2026

The computer storage device industry stands at a pivotal moment as cloud computing and Internet of Things (IoT) technologies reshape global data infrastructure. Two companies have emerged as clear leaders in capitalizing on this transformation: Western Digital Corp. (WDC) and Seagate Technology Holdings plc (STX). Both storage giants have delivered exceptional earnings results and provided strong forward guidance, making them compelling choices for investors seeking exposure to the multi-year growth opportunity in data storage. Currently ranked #1 (Strong Buy) by Zacks, these two players are positioned to benefit tremendously from accelerating cloud adoption and IoT proliferation across enterprise and consumer markets.

The Cloud Computing and IoT Megatrend Reshaping Data Storage Demand

The computer storage devices industry has emerged as one of the market’s strongest performers, with the sector delivering a remarkable 145.8% year-to-date return. This exceptional performance reflects the powerful confluence of multiple growth drivers: cloud computing’s expansion, IoT deployments at the edge, artificial intelligence acceleration, connected device proliferation, virtual reality adoption, and emerging agentic AI applications. Cloud computing serves as the backbone for processing and storing massive volumes of data generated by IoT devices, while simultaneously driving the need for more robust, higher-capacity storage solutions. The symbiotic relationship between cloud computing and IoT means that as more devices connect to networks and transmit real-time data, the demand for efficient data center storage infrastructure intensifies.

The Zacks-defined Computer – Storage Devices industry currently ranks in the top 10% of industry performance, with investors recognizing that this isn’t merely a cyclical recovery—it’s a structural transformation. Cloud service providers, hyperscalers, and enterprises are making unprecedented capital investments in data center infrastructure to support AI model training, inference, and edge processing. Meanwhile, IoT solutions require storage at multiple levels: in-device storage, edge computing storage, and cloud-based archival storage. This multi-tier storage architecture creates diverse revenue opportunities for companies that can serve all segments efficiently.

Western Digital’s Cloud-Driven Growth Strategy Capitalizes on AI and IoT Expansion

Western Digital reported second-quarter fiscal 2026 results that underscore its strong execution in response to cloud computing demand. The company achieved non-GAAP earnings of $2.13 per share, significantly outperforming the Zacks Consensus Estimate of $1.95, representing a 78% year-over-year earnings expansion. Quarterly revenues reached $3.02 billion, surpassing expectations by 2.24%.

What makes these results particularly compelling is where the growth originated. Cloud end-market revenues, which represent 89% of WDC’s total business, climbed 28% year over year—a testament to the company’s deep penetration with hyperscale cloud customers. This cloud computing-driven revenue surge reflects sustained demand for higher-capacity nearline storage products designed to optimize total cost of ownership in AI data centers. Additionally, Client end-market revenues increased 26% year over year, benefiting from the refreshed content creation and storage opportunities enabled by generative AI applications on computing devices.

Robust Product Portfolio Addressing Cloud and IoT Storage Needs

Western Digital has methodically built a product portfolio aligned with cloud computing and IoT infrastructure requirements. The company shipped more than 3.5 million latest-generation ePMR drives during the quarter, supporting capacities up to 26TB CMR and 32TB UltraSMR—representing the high-capacity solutions that cloud customers demand. In aggregate, WDC delivered 215 exabytes of storage to customers, marking a 22% year-over-year increase and demonstrating the sheer scale of data flowing through cloud computing environments.

The company’s technology roadmap reflects a sophisticated understanding of how cloud computing and IoT architectures will evolve. WDC is advancing areal density gains and accelerating its HAMR (Heat-Assisted Magnetic Recording) and ePMR roadmaps, enabling ever-higher storage capacities. Simultaneously, the company is driving adoption of high-capacity and UltraSMR drives—technologies particularly suited for the demanding performance and reliability requirements of cloud computing infrastructure and IoT data aggregation centers at the network edge.

Beyond traditional storage media, WDC is witnessing accelerating adoption of eSSD (embedded SSD) solutions, where demand is surging due to superior speed, reliability, and efficiency compared to HDDs. This trend reflects how AI and edge computing are reshaping storage architectures in IoT applications, where immediate data access and processing speed matter.

Seagate’s Data Center Excellence Benefits from Sustained Cloud Customer Demand

Seagate Technology reported second-quarter fiscal 2026 adjusted earnings of $3.11 per share, outpacing the Zacks Consensus Estimate of $2.83 and the year-ago EPS of $2.03. Quarterly revenues reached $2.83 billion, surpassing consensus by 2.7%, driven predominantly by cloud computing adoption.

The Data Center segment, representing 79% of Seagate’s revenues, climbed 28% year over year—mirroring the robust demand Western Digital experienced. Seagate’s ability to capture such significant growth reflects its strategic focus on serving the highest-volume cloud customers and global hyperscalers. The company’s Edge IoT revenues, while a smaller portion at 21% of total sales, still managed 2% year-over-year growth, supported by seasonal strength in consumer products and IoT client markets.

Massive Scale and Capacity Growth Powered by Cloud Computing Infrastructure Buildout

Seagate shipped 190 exabytes of HDD storage in the reported quarter, surging 26% year over year and 5% sequentially. The data center market accounted for 87% of all shipments, driven by relentless demand from global cloud customers. Among these, Seagate delivered 165 exabytes specifically to data center customers—up 31% year over year—underscoring the unprecedented scale at which cloud computing infrastructure is expanding.

A particularly telling metric: average nearline drive capacity increased 22% year over year to nearly 23 TB per drive, with cloud customers adopting even higher-capacity configurations. This capacity migration reflects how cloud computing economics are shifting—higher-capacity drives reduce the total cost of ownership for hyperscalers managing petabyte-scale data centers. Revenue per terabyte has remained stable despite this mix shift, indicating Seagate’s disciplined pricing strategy and its ability to benefit from secular growth in storage capacity demand.

Future Catalysts: AI, IoT, and Long-Term Contracts Providing Visibility

Management at both companies highlighted catalysts that reinforce the durable nature of cloud computing and IoT-driven storage demand. For Western Digital, the proliferation of generative AI-driven storage deployments is expected to trigger a client and consumer device refresh cycle, boosting storage content creation and consumption across smartphones, gaming platforms, PCs, and consumer electronics. As AI capabilities diffuse throughout IoT edge devices, storage demand will accelerate across both HDD and Flash technologies at the network edge and in centralized cloud computing data centers.

Seagate emphasized that modern data centers increasingly require solutions balancing performance with cost efficiency—a dynamic that strongly aligns with the company’s areal-density-driven strategy and HAMR technology roadmap. The company’s high-capacity nearline production is largely booked through 2026, with long-term contracts extending visibility into 2027. This contracted demand visibility reflects enterprise confidence in the multi-year cycle driven by cloud computing infrastructure buildout and AI data center expansion. Additionally, Seagate’s September 2025 alliance with Acronis demonstrates the ecosystem opportunity: the partnership delivers Acronis Archival Storage, a secure S3 solution leveraging Seagate’s Lyve Cloud for managed service providers and enterprises managing archival storage for AI-driven data growth.

Strong Financial Outlook and Market Position

Western Digital expects continued momentum in the fiscal third quarter, supported by sustained data center demand and further adoption of high-capacity drives. The company projects non-GAAP revenues of $3.2 billion (±$100 million) for Q3, representing 40% year-over-year growth, with non-GAAP EPS guidance of $2.30 (±$0.15). Expected non-GAAP gross margins of 47-48% reflect disciplined execution.

For next year and beyond, WDC expects revenue and earnings growth rates of 18.3% and 50.2%, respectively. The Zacks Consensus Estimate for next year’s earnings has improved 15.5% over the last 30 days, signaling analyst confidence in sustained cloud computing-driven tailwinds. The stock boasts a long-term 3-5 year EPS growth rate of 29.3%, substantially exceeding the S&P 500’s 16.1% rate.

Seagate Technology expects cloud customer demand to remain robust and offset typical March-quarter seasonality in edge IoT markets. For fiscal Q3, the company guides to revenues of $2.9 billion (±$100 million), indicating 34% year-over-year growth at the midpoint, with non-GAAP EPS guidance of $3.40 (±$0.20). Non-GAAP operating margin is projected to expand to approximately 30%.

For the full year, Seagate projects revenue and earnings growth rates of 24.6% and 52.6%, respectively, with the Zacks Consensus Estimate for earnings improving 6.5% over the last seven days. Next year guidance calls for 22.3% revenue growth and 48.7% earnings growth. STX’s long-term 3-5 year EPS growth rate of 38% substantially outpaces the S&P 500’s 16.1%, reflecting the structural nature of cloud computing and IoT-driven storage demand.

The Investment Case: Positioned for Sustained Growth

Both Western Digital and Seagate have demonstrated they can execute against a backdrop of transformative cloud computing and IoT adoption trends. Their strong earnings beats, raised guidance, and confident management commentary all point to a multi-year growth cycle powered by AI data center expansion, hyperscale infrastructure buildout, and the proliferation of IoT devices requiring storage at the edge and in cloud environments. With both stocks carrying Zacks Rank #1 (Strong Buy) designations and boasting long-term EPS growth rates in the 29-38% range, these two storage leaders represent compelling opportunities for investors seeking to participate in the cloud computing and IoT revolution.