Western Digital (NASDAQ:WDC) shares have risen by 84.3% over the past year, yet the company still doesn’t get the attention given to Nvidia, Microsoft or Broadcom. Sure, AI needs GPUs and semiconductors, but it also needs somewhere to store all its data.

That’s why I think data storage manufacturers are one of the best, albeit less obvious, ways to invest in AI.

Cyclical hardware businesses face unique risks, and admittedly its fortunes depend heavily on a small number of hyperscale cloud customers. But the latest results suggest the company’s benefiting from more than a short-lived AI spending burst.

Storage is becoming a growth business

Western Digital may be known as a simple disk drive maker, but it’s come a long way. It’s now more of a storage-infrastructure supplier for the AI and cloud economy, with roughly 90% of revenue driven by data centre demand.

Just look at its Q1 2027 results:

• Revenue up 55% to $4.38bn year on year.
• Gross margin: 58.1%.
• Earnings per share (EPS) up 161% to $4.64.
• Free cash flow: $1.38bn.

Guidance points to Q2 revenue of about $5.1bn, gross margin of 60%-61%, and EPS of around $5.80. This implies another sharp rise in sales, with profitability expected to improve further. Higher pricing, richer product mix and operating leverage are doing much of the work.

For a company once seen as a mature, low-growth disk-drive supplier, those numbers demand attention. But can it keep converting AI demand into durable profits?

Why AI needs hard drives

Western Digital’s high-capacity hard drives are ideal for AI. They aren’t the fastest option, but they can hold massive amounts of data at a relatively low cost if it doesn’t require rapid access.

And capacity is increasing. Its 40TB UltraSMR ePMR drive is in qualification with two hyperscale customers, while its newer HAMR drives are expected to reach 100TB by 2029.

That’s critical. Data centres need increasingly more storage that takes up less physical space. If Western Digital can deliver higher-capacity drives reliably, it’s onto a winning formula.

The risk is obvious though. Strong guidance doesn’t guarantee that cloud companies will keep ordering at today’s pace. If AI profits disappoint, data centre spending could slow, and data storage manufacturers would see their profits dwindle.

A grounded way to play AI

Western Digital isn’t the most exciting AI stock. It doesn’t have Nvidia’s halo, and it won’t deliver the same headline-grabbing growth. But it has shown real earnings power, generated $1.38bn of free cash flow in the quarter, and returned $1.1bn to shareholders through buybacks and dividends.

The board also raised the quarterly dividend by 17% to 175c per share. It’s still a tiny yield for now, but it signals confidence in cash generation.

For investors seeking an alternative to the most obvious AI names, Western Digital seems worth a closer look. It offers direct exposure to the AI build-out, but through storage rather than semiconductors.

The question now is whether its customers keep spending – and whether the company can sustain margins as capacity rises.

Should you invest £5,000 in Western Digital right now?

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Mark Hartley does not hold any positions in the companies mentioned.