The year is winding down and the S&P 500 has climbed 17% in 2025, hovering just shy of its all-time high amid robust economic growth and steady corporate earnings. While headlines fixate on artificial intelligence (AI) leaders such as Nvidia (NASDAQ:NVDA | NVDA Price Prediction) and Palantir Technologies (NASDAQ:PLTR), much of the index’s surge is owed to an unexpected duo: storage-focused chipmakers.
The top two performers this year are semiconductor stocks, but not the usual suspects powering AI accelerators. Instead, demand for massive data storage in cloud and AI infrastructure has propelled these underdogs. Sandisk (NASDAQ:SNDK) and Western Digital (NASDAQ:WDC) rank as the benchmark index’s best stocks this year (industry peer Seagate Technology (NASDAQ:STX) was the S&P’s fourth-best stock). Let’s find out why they trounced the industry’s headline names.
Sandisk (SNDK)
Sandisk has redefined 2025’s chip narrative, surging 534% year-to-date since its February spinoff from Western Digital. This flash memory specialist, once overshadowed in the broader storage conglomerate, now stands alone as a pure-play NAND supplier, capitalizing on acute shortages in high-capacity chips essential for AI data centers.
The breakout began with the split, allowing Sandisk to focus on flash production without the distractions of HDDs. Revenue jumped 10% to $7.36 billion in fiscal 2025, driven by AI hyperscalers like Amazon‘s (NASDAQ:AMZN) AWS and Google Cloud ramping up exabyte-scale storage needs.
Analysts point to NAND prices soaring 50% amid supply constraints, boosting margins to 35% — far above the industry average of 25%. Unlike Nvidia’s GPU dominance, Sandisk’s edge lies in backend infrastructure: every AI model trained requires petabytes of persistent storage, an area where flash excels in speed and density.
This has outpaced not just so-called AI stocks but the entire S&P 500. While Nvidia’s earnings jumped 51% so far in 2025 on chip demand, Sandisk’s vertical integration — from wafer fab to SSD packaging — delivered 188% adjusted earnings growth, drawing upgrades to “Strong Buy” with targets near $264 per share. Its inclusion in the S&P 500 last month led to index fund inflows, pushing shares from around $40 at the spinoff to $228 per share today.
Risks remain in cyclical memory pricing, but with AI capex projected at $500 billion in 2026, SanDisk’s outperformance signals storage is the unsung hero of the AI era.
Western Digital (WDC)
Western Digital retained its hard disk drive business after the Sandisk spinoff and has rocketed 275% in 2025, securing the No. 2 spot among S&P performers. By doubling down on high-capacity HDDs, the company tapped into AI’s voracious appetite for cost-effective, massive-scale storage that flash can’t match economically.
While Western Digital began its rise soon after the market crash in April, fiscal Q4 results ignited the rally, with revenue soaring 30% to $2.6 billion.The momentum continued into fiscal 2026, with Q1 sales up another 27% to $2.8 billion, helping drive gross margins well above management’s guidance to 43.5%. Second-quarter revenue is expected to grow by another 20%.
AI training datasets, often in the zettabyte range, favor HDDs for archival and cold storage, areas where Western Digital holds 40% market share. Profits also surged, up 631%, as hyperscalers prioritized capacity over speed for non-real-time workloads.This contrasts sharply with volatile AI chip leaders like Advanced Micro Devices (NASDAQ:AMD) or Broadcom (NASDAQ:AVGO).
Western Digital’s focus on AI-optimized platforms, including partnerships with Microsoft (NASDAQ:MSFT) Azure, unlocked $600 million in spin-off cash, funding R&D and debt reduction. Analysts see sustained demand as AI clusters scale and the stock’s resilience amid tariff talks underscores its moat. Unlike pure-play semiconductors, HDDs benefit from diversified enterprise sales, and in a year where the S&P averaged 17% gains, Western Digital’s execution turned a legacy tech giant into a growth machine.
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