As cyberattacks continue to increase in frequency, the demand for end-to-end encryption will also drive growth in secure storage solutions. These factors propel the demand for sophisticated data storage solutions, bolstering computer storage product requirements. These factors are favorable for prominent industry players like Sandisk Corporation SNDK, Western Digital and Super Micro Computer SMCI. Escalating trade and geopolitical tensions and their impact on supply chains, along with global macroeconomic turbulence and associated inflation, remain headwinds.
Industry Description
The Zacks Computer-Storage Devices industry houses companies that design, develop, manufacture and market various HDDs and SSDs. These drives are utilized in PCs, laptops, mobiles, servers, network-attached storage devices, video game consoles, digital video recorders and other consumer electronic devices. Some industry participants, including Pure Storage, provide software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. Many industry players offer high-performance modular memory subsystems, mount and blade server systems, enterprise storage and data management software, and hardware products and services. Some industry participants also provide purpose-built servers for storing and accessing data over a shared network or the Internet.
3 Trends Shaping the Computer-Storage Industry's Future
AI’s Impact on the Storage Devices Industry: Rapid proliferation of AI is overhauling the entire tech landscape. AI workloads like training large language models and running inference are driving demand for high-speed, high-capacity and low-latency storage solutions. Traditional storage architectures are insufficient for the data throughput required by AI applications, prompting a transition toward NVMe-based SSDs (PCIe Gen 4/5/6), software-defined storage and storage-class memory. Object storage is best suited for storing unstructured data, a common prerequisite for AI workloads. Other fast-emerging solutions include Parallel File Systems Optimized for AI and QLC NAND SSDs for AI Data Lakes.
According to a report from Gartner, worldwide IT spending is now projected to reach $6.37 trillion in 2026, calling for an increase of 14.2% from 2025 levels, driven by data center systems and IaaS. Spending on data center systems is expected to be $822 billion in 2026, added the research firm.
Innovation in Cloud Storage Technologies to Drive Adoption: Broader storage options from collocated hardware (such as hard disks and tape drives) to many cloud storage solutions have put the industry on a growth trajectory. Industry players are well-poised for growth owing to a rapid increase in data, the complexity of data formats and the need to scale resources at regular intervals. These companies rely on AI for IT Operations and machine learning to manage and optimize storage solutions.
To streamline data storage, companies are focusing on virtualization technologies. As more data is added from IoT, companies are turning to edge computing architecture to reduce latency and boost flexibility. Moreover, increasing uptake of containerized applications is accelerating demand for Kubernetes-native storage solutions that enable greater scalability, portability and automation across cloud environments. These trends support wider deployments of scalable enterprise and hyperscale storage systems. Moreover, the industry’s focus is shifting from one-time hardware sales to recurring, usage-based revenue streams as cloud-native storage models (object storage and Storage-as-a-Service) gain traction.
Macro Conditions Remain a Concern: Escalating trade tensions and tariffs are emerging as a key concern. These are weighing heavily on global macroeconomic conditions and can disrupt supply-chain dynamics. Uncertainty in the macro backdrop and inflationary pressure could affect spending across small and medium-sized businesses globally. The uncertainty in business visibility could dent the industry’s performance in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer Storage industry is housed within the broader Zacks Computer and Technology Sector. The industry carries a Zacks Industry Rank #21, which places it in the top 9% of more than 247 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, due to bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms the S&P 500 and the Sector
The Zacks Computer-Storage Devices industry has outpaced the S&P 500 composite and the broader sector in the past year.
The industry has risen 396.1% in this period compared with the S&P 500’s growth of 20% in the past year. The broader sector has gained 26.7% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price/Earnings (P/E), which is a commonly used multiple for valuing computer storage device companies, we see that the industry is currently trading at 9.98X compared with the S&P 500’s 20.34X. The metric is also below the sector’s forward 12-month P/E of 20.82X.
In the past five years, the industry has traded as high as 97.84X and as low as 8.25X, with the median being 14.27X, as the charts below indicate.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Forward 12-Month P/E Ratio
3 Computer Storage Devices Stocks to Add to Portfolio
Sandisk: SNDK was formed after Western Digital completed the separation of its HDD and Flash businesses into two independent, publicly traded companies, each with a specific focus on the respective market. Sandisk manages the Flash business.
Datacenter has become the company’s fastest-growing end market, rising from roughly 12% of its bits a year ago to 38% exiting fiscal 2026. Demand for NAND storage products is increasing rapidly as investments in data centers and AI infrastructure ramp up.
Sandisk is benefiting from its BiCS technology across TLC and QLC, while high-bandwidth flash also represents a longer-term opportunity. The company also started shipping the QLC Stargate platform, which expands its portfolio across performance-intensive compute workloads and high-capacity AI data lakes.
A key differentiator in Sandisk’s strategy is the introduction of the new business models (NBMs), which are reshaping its revenue visibility. Sandisk added that it has signed NBMs with eight customers, representing 50% of bits in fiscal 2027 and nearly two-thirds of bits in fiscal 2028
Revenues for the fiscal fourth quarter surged 51% sequentially and 372% year over year to $8.97 billion. Datacenter revenues rose 103% sequentially to $2.98 billion, while Edge revenues increased 48% to $5.43 billion.
Fiscal first-quarter 2027 revenues are expected to be in the range of $10.3-$10.8 billion, supported by bit growth and higher pricing.
At present, SNDK flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for its fiscal 2027 bottom line is pegged at $213.30, unchanged in the past seven days. The stock has surged 2847.5% over the past year.
Price and Consensus: SNDK
Super Micro Computer: The company, headquartered in San Jose, CA, is fast evolving as a AI/IT data center total solution company.
It is gaining from AI infrastructure buildout and increasingly broadening enterprise CPU-based server, storage and IoT product lines. The company’s Data Center Building Block Solutions, or DCBBS, integrate GPU-CPU servers, enterprise storage, direct liquid cooling, high-speed data switch, chilled door, water tower and networking, data center management software, and full-cycle services, potentially improving both customer deployment times and SMCI’s profitability.
SMCI is ramping its manufacturing capacity and recently announced a new 32-acre DCBBS facility featuring advanced optical photonics networking labs and data center-scale manufacturing. Across the globe, total manufacturing capability remains on track to surpass 6,000 racks per month, including more than 3,000 direct liquid-cooled racks per month, as highlighted by the management on the last earnings call.
Fourth-quarter fiscal 2026 revenues rose 93% year over year to $11.1 billion, while non-GAAP gross margin jumped to 17.6%. More than $60 billion worth of new orders were received during the fiscal fourth quarter, strengthening backlog numbers. Management expects more than 80% of revenues going forward to be tied to AI-related solutions. For the fiscal first quarter, SMCI expects revenues of $14.5-$15.5 billion.
At present, SMCI sports a Zacks Rank #1. The Zacks Consensus Estimate for its fiscal 2027 bottom line is pinned at $4.43, unchanged in the past seven days. The stock has declined 15% in the past year.
Price and Consensus: SMCI
Western Digital: Headquartered in San Jose, CA, WDC is a leading developer and manufacturer of data storage devices and solutions.
Western Digital enters fiscal 2027 with strong demand visibility, led by AI, cloud expansion and the continued proliferation of data-intensive workloads. Management sees the shift from model training toward inference, agentic AI and physical AI as a structural source of capacity demand because these workloads generate and retain data continuously. Management expects physical AI to contribute to growth in calendar 2027 and beyond.
For the fiscal fourth quarter, revenues of $3.75 billion surged 44% year over year with fiscal 2026 revenues up 36% year over year to $12.9 billion. Nearline remains the key growth engine, while the company is ramping higher-capacity products to support rising storage requirements.
WDC is currently ramping UltraSMR with its third major customer and expects the technology to account for around 60% of nearline exabyte shipments exiting fiscal 2027.
Strong revenues and free cash flow generation are aiding in sustaining shareholder returns. The company returned $3.1 billion to its shareholders during fiscal 2026. In the fiscal fourth quarter, it repurchased common shares for $1 billion and paid $54 million in dividends. WDC expects the first quarter of fiscal 2027 revenues of $4.1 billion (+/- $100 million), implying 45% year-over-year growth at the midpoint.
At present, WDC holds a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for WDC’s fiscal 2027 bottom line stands at $20.03, unchanged in the past seven days. The stock has skyrocketed 471.5% in the past year.
Price and Consensus: WDC
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This article originally published on Zacks Investment Research (zacks.com).