The S&P 500 has been on quite an impressive growth streak in 2025. Despite tariff uncertainty spooking the market in April, exceptional artificial intelligence (AI) spending has lifted the US economy and helped drive its flagship stock market index up by double digits.
In fact, even with all the recent volatility, index investors have nonetheless earned a robust 15.6% return since the start of the year, including dividends. As such, a £7,000 investment at the start of January is now worth roughly £8,092.
And yet some stock pickers have generated even more explosive gains. In fact, Western Digital (NASDAQ:WDC) has more than tripled, rising by 222.7% leaving more popular stocks like Nvidia in the dust this year!
For the investors who were smart enough to spot this growth opportunity, their £7,000 is now worth over £22,589!
But of course, the question now becomes, can Western Digital shares do it again in 2026?
The AI winner everyone ignored
Nvidia’s reaped enormous profits by selling semiconductor chips to power machine learning models. But Western Digital has joined in the gold rush by selling the solution to the enormous data storage requirements of these AI models.
The group specialises in making hard disk drives (HDDs) and solid state drives (SSDs) for both consumers and enterprises alike. But it’s the latter driving the bulk of demand right now.
With the company receiving record-breaking order volumes, revenue for its 2025 fiscal year (ending in June) jumped by an impressive 51%. But it was underlying operating profits that stole the show, rising from $343m to a staggering $2.3bn – a 578% surge.
This momentum has continued into the first quarter of its 2026 fiscal year, with sales up 27% year on year and operating profits more than doubling by 110%. With all this momentum in mind, it’s no surprise that Western Digital shares have skyrocketed in 2025.
More growth to come?
It’s clear from the group’s latest results that demand for its storage technology remains robust. And with even more AI infrastructure spending expected in 2026, analyst projections remain exceptionally bullish.
One has even forecast the stock could climb to $250 a share by this time next year. Compared to where the stock’s trading today, that translates into a potential capital gain of 65.6% backed by the continued expansion of profit margins and tight supply dynamics.
However, while this is undeniably exciting, there are still some critical risks to consider. With hyperscalers driving the bulk of demand, Western Digital’s now become reliant on just a handful of customers for the bulk of its profits.
Management’s ramping up its production capacity to meet this demand. But should AI-infrastructure spending suddenly slow, the market could become oversupplied with storage solutions, pressuring prices and potentially reversing the impressive margin expansion enjoyed in 2025.
In other words, the fate of Western Digital shares appears linked to the wider AI market. And if the latter proves to be the bubble that many analysts have begun suspecting, it could spell disaster for this S&P 500 stock.
Nevertheless, I think an opportunity to consider remains on the table, especially with a forward price-to-earnings ratio of just 18.4. And it’s not the only seemingly reasonably priced AI stock I’ve got my eye on right now.
