"Boring" IT stocks have suddenly become growth leaders. Why is the advice to sell sounding?

In 2025, the unexpected favorites of the US stock market are the "old" technology companies - Seagate, Western Digital and Micron, whose shares soared by at least 90% amid the hype around AI. Their products - hard disks and memory - although they look boring to investors, are critical for training large language models that require huge amounts of data. Now these securities remain relatively undervalued by multiples, and Wall Street is generally optimistic about them, although the growth rate of quotations is ahead of analysts' forecasts. At the same time, some experts advise to fix profits and warn of risks: the rally, according to them, may be a reflection of market overheating and a possible bubble.

The attention of investors in the shares of the direct beneficiaries of the AI boom has also spread to the "old school" technologies, Bloomberg notes. The leader of growth in the main U.S. stock index S & P 500 in 2025 was Seagate, a manufacturer of hard disks for PCs: its quotations since the beginning of the year soared by 156%. The securities of its competitor - Western Digital - took the third place, rising in price by 137%, and the value of Micron, the largest U.S. memory manufacturer, almost doubled thanks to a record series of growth for 12 consecutive days.

Shares of hardware makers are rising amid the hype around anything AI-related. Seagate and Western Digital are among the least "sexy" companies caught up in the euphoria around AI, Bloomberg writes. Nevertheless, it is their hard disks that provide storage for the giant data sets without which AI models cannot be trained, Bloomberg reminds us. The situation is similar with Micron: its high-speed DRAM memory is a key element in AI computing, but the company itself seems boring to investors, the agency emphasizes. "I hear people's eyes go blank when I talk about these companies on the phone," said Kim Forrest, founder of Bokeh Capital Partners. - They want to talk about flying cars and robot dogs".

Seagate, Western Digital and Micron have traditionally been among the cheapest securities in the S&P 500 due to business cycles and limited investor interest. While all three companies are profitable now, they have had to make losses in recent years. At the beginning of 2025, Western Digital was valued at less than 6 times projected earnings to share price, Seagate and Micron - about 10, while the average multiple on the index is 23. Now the valuations have risen, but still remain attractive to investors, notes Bloomberg. The most expensive is Seagate, with a P/E ratio of about 20. Revenue forecasts also vary: Seagate's growth should slow from 39% in 2025 to 16% in 2026, Western Digital, after a 27% drop in sales, expects a 16% increase, and Micron promises the highest rates - +48% this year and +33% next year.

Wall Street is generally optimistic about these three companies, but the stocks are rising so fast that analysts haven't had time to raise their price targets. Seagate, for example, is trading about 16% above the Wall Street consensus, and Western Digital is up more than 10%. Only Micron, according to the average target, still has upside of 2% from the close of Friday, September 19.

While optimists see the rise in shares of "old" tech companies as an opportunity to capitalize on AI at the expense of more and more players, skeptics, on the contrary, see it as a symptom of an inflating bubble that is destined to burst. They advise investors to lock in profits in such stocks.

"This behavior is typical of the bubble period," Michael O'Rourke, Jonestrading's chief market strategist who was a trader during the dot-com era, told Bloomberg. - "When people start looking for secondary and tertiary trades because the leading stocks have gotten too expensive, that to me is a sign of a very late stage in the cycle.'' He added that it is common for cyclical companies to peak at low multiples and bottom during a period of losses. Therefore, in his opinion, one should buy such securities when the business is unprofitable, and sell them when the multiples look attractive.

Forrest of Bokeh Capital Partners also believes the AI market is overheated and, like the internet once was, the technology will find real-world applications much slower than expected. "If you're buying something that's solely for AI or data centers, anything that's on such a straight trajectory is more a signal of caution than growth," Forrest said.

This article was AI-translated and verified by a human editor