Western Digital, Seagate Stocks Slide on Concerns Over Toshiba's AI Storage Expansion

Shares of Western Digital (WDC) and Seagate Technology (STX) each fell 10.2% on Friday, Oct. 2, after a report that Toshiba plans to sharply increase its output of hard disk drives for artificial-intelligence applications. Both stocks closed above their intraday lows. For Seagate, it was the worst single-day decline since July 2, when it fell 10.4%, according to Dow Jones Market Data.

What Toshiba is reported to be planning

Nikkei Asia reported that Toshiba intends to double its manufacturing capacity for HDDs used in AI applications during its 2027 fiscal year. The plan includes expanding a plant in the Philippines, which the report said would be Toshiba's first meaningful investment in hard disk drives in half a decade. Toshiba could not be reached for comment, MarketWatch reported.

The three companies dominate the hard-drive market, so a large capacity increase by one of them affects the others directly. Hard drives store large volumes of data at a lower cost per unit of capacity than flash memory, and that has made them a key component of the data centers being built for AI.

Why the report hit the stocks

The current boom in storage rests on scarcity. Storage and memory components are in short supply, which has allowed manufacturers to sell what they produce at high prices and earn strong profits. Additional supply from a major competitor is the most direct threat to that pricing power.

Jordan Klein, a trading-desk analyst at Mizuho, said the report will likely lead investors to question whether the two companies can meet upbeat expectations for gross margins, the share of revenue left after the cost of making their products. Over time, more supply could give large cloud providers more leverage when they negotiate prices.

Why analysts see the impact as distant

Both analysts quoted by MarketWatch argued that the near-term effect is limited.

Klein said it is unclear how much capacity Toshiba can add and how quickly. He said any added supply would likely not affect contract negotiations before 2028. He also said Seagate "has a major technology lead over Toshiba" and over Western Digital, and that he is not yet worried about customers moving away quickly, in part because demand for hard drives is running so far ahead of supply.

Amit Daryanani of Evercore ISI said investors should focus on supply discipline among drive makers and the durability of long-term demand rather than on near-term financial effects. On those points, he said, the setup looks positive: both Western Digital and Seagate have their 2027 supply volumes under contract, and their 2028 volumes are mostly allocated to customers.

Daryanani also pointed to a practical limit on Toshiba's expansion. The company "can only grow as fast as its suppliers do" for components such as glass, and that could take several months. Seagate and Western Digital make some of their own components, which reduces their dependence on outside suppliers.

Toshiba's expansion plans

Friday's selloff priced in a risk that, by Klein's account, would not show up in contract talks before 2028. The next signals will come from the companies themselves:

• Any confirmation or detail from Toshiba on the size and timing of the Philippines expansion.
• Gross-margin guidance from Western Digital and Seagate in their next quarterly reports, the measure Klein said investors will now question.
• Comments from the companies on pricing and contract terms for 2028, the earliest point at which Klein sees added supply affecting negotiations.