Remy: Today's capital markets segment is brought to you by Alpaca. And now tech stocks, they say, critical test this week as earnings are set for release from Microsoft, Alphabet, as well as Amazon. Both the Nasdaq Composite and the Nasdaq 100 are trading below their 100-day moving averages. Meanwhile, Seagate reports earnings tomorrow. And we did see Western Digital shares lose 9% after tripling factory spending, spurring new worries over runaway AI infrastructure costs. Well, joining us this morning to break down the hardware reality as well as the tech tape is Don Geel, who is data platforms analyst at Hyperframe Research. Good morning. Thank you so much for joining me.
Don Geel: Good morning, Remy. Thank you for having me on.
Remy: Well, we are kicking off a big week for markets, and we are looking at the Nasdaq higher this morning, but given the sell-off, what can we expect as we head into this big week?
Don Geel: We're right between two tech heavyweights in the storage space, and so we're a little further down in the stack from an infrastructure perspective. We just had Western Digital on Thursday evening and we've got Seagate coming up tomorrow, and those are great indicators, bellwethers of where the demand is for the infrastructure for the buildout, right? Data is so important, and these are the spinning media companies, the hard drive companies. So Western Digital had great numbers across the board. Look, they're 4.38 billion, 55% year over year. Their adjusted earnings per share, 4.64%, so they did a great job even though the numbers are doing so well. The stocks are under tremendous pressure, down about half from where they were in June. So up for the year, but down about half. And so that shows some valuation pressure that's happening, some compression, and so the stocks are under more pressure now even though the companies are performing well.
Remy: Yes. Speaking of Western Digital, it was interesting to see the market reaction in terms of the share prices coming down. So walk us through why we saw that and what we can expect moving forward.
Don Geel: I think this is a repricing, Remy, honestly, those sky-high valuations and whatnot. The company is doing a great job, but there are some competitive pressures. There are cost issues as well. And so the thought is, can the company keep it up? Can they keep up their demand? And the company told us that they are looking at 2027 and 2028. Margins look great. Demand looks great. And even out into 2030, 2031, infrastructure looks terrific. So for them and for the infrastructure companies, the demand is there. The question for the market is, is the pricing worth it in the stock?
Remy: And of course we are counting down to Seagate earnings amongst other names that are reporting this week. So give us a sneak peek, and what numbers do you need to see?
Don Geel: One of the things is exabytes shipped. This is the heavyweights duking it out. There's a third company in the mix too, Toshiba. And so as Toshiba comes online and they want to grab some share, right, they're building out manufacturing capacity. It takes a couple of years. There is some vertically integrated advantage from Seagate and from Western Digital. They both build all their technology, so they have somewhat of a moat from a technology perspective, but what we're really watching is Seagate closing the gap in exabytes shipped. And the good news is the pie is getting larger. So even as Seagate gains on Western Digital, both companies can also grow at the same time.
Remy: And of course as we count down to the final weeks of 2026, hard to believe, but 2027 is right around the corner. There are a lot of questions regarding the AI trade, especially in terms of what we've seen in the past two weeks. So looking beyond just hard drives, what are you paying attention to right now? Why?
Don Geel: Well, one of the issues is that training is still very important. Inference is massive. All that data has to go somewhere, so that is more demand for CPUs, for GPUs, for storage, for networking, all the pieces of the infrastructure, data centers as well, and the power to run those systems. So all of those elements together put together what we would call the AI infrastructure buildout. I did bring a, for you today, this is a Western Digital Passport from 2019. I paid $100 for it.
Remy: I actually have the same one.
Don Geel: It's 4 terabytes, and this is spinning media, and the cost for this now is over $200. So you can see as a consumer, and that's only 5% of Western Digital's revenue, there's pressure on us as consumers. Enterprises and hyperscalers are seeing the same thing. So we're also watching neoclouds. And we're watching AI model builders and seeing how much diversification these companies can get instead of so much customer concentration.
Remy: And as we kick off a new trading week, we're seeing neoclouds under pressure, especially as we're hearing about the debt raises from some of the bigger players out there. So walk us through what we're seeing, and do you think this is overdone?
Don Geel: There is tremendous demand regardless of how you look at the debt issue and how you look at the buildout right now. All the companies that we talked to say everything is sold out. Even Andy Jassy on Friday hinted at it in a conversation and said, listen, AWS is basically sold out through 2028. That is tremendous demand. So there's, as far as we're concerned, the issue is how much capacity can we bring online, how quickly? Everybody is grabbing everything that they can, so the pricing is good for the manufacturers, for the vendors.
Remy: And finally, before I let you go, of course we're going to continue to pay attention to the big earnings coming out from the hyperscalers this week. But what do you expect to see from those hyperscalers?
Don Geel: Well, as I said, the demand is there, so the question is can they satisfy that demand? How much backlog can they serve and relieve, and how much is that backlog growing? And then will they give us some indication of how far out that goes? Is it two years, three years, four years? That's the part that we're watching very closely.
Remy: Well, Don, I appreciate your time. Thank you so much for joining us and, as always, thank you so much for sharing your perspective.
Don Geel: Thank you.
Remy: Thank you.
