-
Big tech is spending heavily on components needed to build out new data centers for AI training.
-
One key component supplier has seen demand rapidly outpace the supply of its products.
-
Its technology lead could enable it to take some market share.
Many artificial intelligence (AI) stocks have zoomed higher over the last three years, following the introduction of OpenAI's ChatGPT. One of the biggest winners, by far, has been Palantir Technologies (NASDAQ: PLTR). The enterprise software company integrated generative AI into its software in 2023, and it's seen sales and profits soar ever since. The stock is up a cumulative 2,500% since the start of 2023, including a 120.7% rise in 2025 alone, as of this writing.
Up until last week, that was good enough to make it the best performer in the S&P 500 at the moment. But another stock overtook the market darling's year-to-date performance at the start of September, boosted by the voracious demand for artificial intelligence. Say hello to the new best-performing stock in the S&P 500.
Big tech companies are spending hundreds of billions of dollars on building out data centers and outfitting them with servers. Chipmakers like Nvidia have benefited greatly as demand for graphics processing units (GPUs) and custom AI accelerators continues to climb. But there's another important component to building out data centers: Storage.
AI training is extremely data-intensive. While some of that data needs to be readily accessible quickly, a lot of it can be held in what's called "nearline" storage. Nearline storage might take a few seconds to access, but it's a cheap and effective way to maintain the huge amounts of data needed for large language models.
Hard drive maker Seagate Technology (NASDAQ: STX) has seen demand for nearline storage explode, helping push its stock to a 121.4% gain so far this year, as of this writing. That's better than every other stock in the S&P 500, including Palantir.
The company shipped 137 exabytes of capacity to data center customers last quarter, up 14% sequentially and 52% year over year. The financial results are just as impressive. Revenue grew 39% in fiscal 2025. Gross profit margin expanded to 35.2% from 23.4% last year. Fourth-quarter gross margin was even more impressive at 37.4%, as the market remains supply-constrained.
Seagate is one of two major suppliers of hard drives. Western Digital (NASDAQ: WDC) remains its biggest rival, maintaining a nearly equal share of the market. Unsurprisingly, Western Digital is also a top-performing stock this year, as it benefits from the exact same mega trend as Seagate. While both have made strides in increasing storage capacity per unit, there's still a limit to how much each can produce. Thus, they've both seen strong gross margin expansion.