Computer Peripherals · Outside the Retail 100

Seagate Technology

STX

Our rating: hold
12-month target: $726.42 +22.3%
Expected vs. S&P 500: +4.3 ptsSee the math
Next earnings: Jan 26In 82 days

Seagate alone ships heat-assisted hard drives in volume, yet Western Digital earned about the same 58% gross margin without them, so the shortage, not the technology, sets profits.

Summary

Seagate makes hard drives, and data centers, mostly cloud companies building for AI, buy about four-fifths of them. Drives are scarce, so revenue rose 61% last quarter and gross margin reached 58%, up from 40%. Drives for cameras and PCs, about a fifth of sales, grew too. The stock is 36% below its June high after Toshiba announced more output and chip stocks sold off. We think contracts hold prices through 2028, and at about 11 times fiscal 2028 forecast earnings much of that is already in the price.

$606.11

+$340.56 (+128.25%)Past year

What Seagate Technology does

Seagate is one of three hard drive makers, with Western Digital and Toshiba, and holds about 44% of the market. It is the only one shipping heat-assisted (HAMR) drives in volume.^3,2,12

What it sells

Data Center80% of revenue, FY2026
High-capacity drives for cloud companies, a market it splits with Western Digital. Last quarter it shipped 198 exabytes here to Western Digital's 223.
Edge IoT20% of revenue, FY2026
Drives for security cameras, home and office storage boxes, PCs and consoles, plus LaCie external drives. Flash keeps taking the low-capacity end.

Who buys it

Cloud companies buy most of its drives under multi-year supply agreements, and one unnamed customer made up 14% of fiscal 2026 revenue. AI and cloud demand have made Seagate mainly a data center supplier.

Where you've seen it

LaCie external drives in electronics stores, and the hard drives holding most data in big cloud data centers.

How the business makes money

The backstory

Hard drive makers spent 2023 in a bust, and Seagate paused buybacks. Then cloud and AI buyers came back faster than drives could be made, and management says the gap between demand and supply is probably still growing. CEO Dave Mosley's answer is to add supply only by storing more on each disk with HAMR, not by building more drives, and to lock prices about a year ahead.

Seagate earns more by selling more terabytes in each drive at a higher price per terabyte. HAMR adds terabytes without new plants, scarcity lifts prices, and the cash pays down debt and buys back shares.^1,2,3,14

1 · DemandCloud storageCloud buyers need cheap capacity for AI data. Seagate's data center exabytes rose 24% from a year earlier last quarter.
2 · Supply limitSame drive countSeagate is barely adding drive output. It grows capacity by storing more per disk, aiming for about 25% a year.
3 · Cost edgeHAMR disksEach Mozaic generation adds a terabyte per disk, and management says it costs little more to make than the last.
4 · PricingYear-ahead contractsPrices lock about 12 months out and rise as contracts roll. Revenue per terabyte shipped rose about a third in a year.
5 · Cash engineLow capexSpending on plants stays near 5% of revenue, so most profit becomes cash: $1.5B of free cash flow last quarter.
6 · PayoutDebt, then buybacksDebt came first. Seagate expects net cash by year-end, then buybacks rise in 2027.

Advantages

Alone in heat-assisted drives, for now

Major advantage

Seagate's edge is cost per terabyte, not price. HAMR, heat-assisted magnetic recording, uses a laser to heat a spot on the disk so it can hold smaller bits. Seagate is the only maker shipping it in volume. In a shortage every maker charges about the same, so the lead pays off when supply loosens or a rival stumbles switching over.

1.A 25-year bet. Seagate has worked on HAMR for about 25 years and missed targets for a decade. Western Digital and Toshiba stretched older recording technology with microwave assist instead.
2.Makes its own heads. It makes its own read/write heads, in Northern Ireland and Minnesota, and its own disks, though it buys some heads from TDK. Toshiba buys all its heads there.
3.A generation ahead. Mozaic 4 holds 4 terabytes per disk and is ramping at two big cloud customers. Western Digital plans volume HAMR shipments in the first half of 2027.
4.Not yet in margins. Western Digital matched Seagate's gross margin last quarter without HAMR. We think the lead lasts about two years and matters most when prices fall, as a lower cost floor.^{11,3,13,2,9,8,10}

Leaner than Western Digital

Strong advantage

Seagate spends less to run the company. Operating expenses were $300M last quarter, about 7% of revenue, so on a similar gross margin it earned a 50.7% operating margin to Western Digital's 49.1%. This edge is real but small, and it does not protect profits if drive prices fall.^1,2,8

Contracts priced a year ahead

Supporting

Shared with Western Digital, which also sells under long agreements. Seagate locks configuration and price about 12 months out, and some cloud deals run through 2030. That delays both price rises and price cuts, which softens the next downturn's start but does not prevent it.^2,9,14

What's changing

Shipping Mozaic 4 and clearing debt

Seagate is moving cloud customers to Mozaic 4 and expects HAMR to be about half of its cloud exabytes by the end of 2026. It retired about $2B of debt since July and expects to hold more cash than debt by year-end, freeing cash for larger buybacks from 2027.^1,2,14

Competitors

Who else an investor would consider, and how they compare.

Company	Market value	What it does	Compared with Seagate Technology
Seagate Technologythis stock	$139.14B	Seagate is one of three hard drive makers, with Western Digital and Toshiba, and holds about 44% of the market. It is the only one shipping heat-assisted (HAMR) drives in volume.
Western DigitalWDC	—	The other big hard drive maker, stretching older recording technology to 40-terabyte drives.	Western Digital ships more terabytes today; Seagate leads the switch to HAMR.^8,9
Toshibaprivate	—	Distant third in hard drives, spending about $380M to double Philippine output.	Toshiba buys all its heads from TDK; Seagate builds its own.^12,13
Pure StoragePSTG	—	Dense, low-power flash modules sold to cloud giants such as Meta to replace disks.	Pure sells denser, lower-power flash; Seagate's disks still hold most cloud data.^20,3

Bull vs. bear: two bets on the same stock

1
A share is a small slice of the company. Its value comes from the profits the company will make in the future.
2
Nobody knows those profits yet. Buyers (bulls) pay today's price betting they'll beat what most people expect. Sellers (bears) bet they'll fall short.
3
When results come in, the price moves toward whichever side was right, and that side makes money.

The question they disagree on

Will the calendar 2028 contracts Seagate prices over the next few quarters keep its gross margin above 55%?^{1,2,3,5,6,8,9,12,14}

Bull case: why buyers buy

If 2028 contracts reprice higher and Mozaic 4 lifts shipments about 25% a year, fiscal 2028 earnings reach forecasts and buybacks shrink the share count.

Prices are set a year ahead. Configuration and pricing lock about 12 months out, and most cloud supply is allocated through calendar 2028.
New drives add capacity without new factories. Mozaic 4 stores 4 terabytes per disk, and capex (spending on plants and tools) stays at 4% to 6% of revenue.
Cash is turning to shareholders. Debt fell to $1.6B after the quarter, and management plans to raise buybacks in 2027 toward 75% of free cash flow.
The smaller business is growing too. Edge IoT revenue, from cameras, PCs and storage boxes, rose 52% from a year earlier.

Bear case: why sellers sell

If Toshiba's added output and Western Digital's 2027 HAMR ramp meet slower AI spending, 2028 prices flatten and earnings stop growing near a peak.

The last bust was recent. Revenue fell from $11.7B in fiscal 2022 to $6.6B in fiscal 2024, and Seagate paused buybacks.
More supply is coming. Toshiba, with about 11% of the market, plans to nearly double its Philippine plant's storage output by March 2028.
The technology lead isn't showing in margins. Western Digital's gross margin was 58.1% to Seagate's 57.8%, and it guides to about 60.5% next quarter.
Seagate's shipments stalled last quarter. Its exabytes were flat from June while Western Digital's rose 8%; management blamed staging Mozaic 4 for customer tests.

Where Delphi landsholdWe think today's price already weighs both sides fairly.See why

What to watch

The numbers that will settle the debate.

Gross margin (non-GAAP)▲ improving

57.8% last quarter, up from 40.1% a year earlier; operating margin guided to 50–55% this quarter^1,2

Shows whether contract repricing keeps lifting profit. Below 55% would signal prices have peaked.

Data center exabytes shipped■ unclear

198 EB, up 24% from a year earlier; total 220 EB, roughly flat from June^2,14

Mozaic 4 should lift supply about 25% a year. Flat quarters cap revenue growth.

Edge IoT revenue▲ improving

$784M last quarter, up 52% from a year earlier^2,14

About a fifth of sales. Shows whether demand outside the cloud holds as flash takes small drives.

Next earnings report

Jan 26

In 82 days

Expected earnings per share: $9.21
Expected revenue: —

What to listen for: Whether exabytes jump as Mozaic 4 ramps, as management promised, and the first word on calendar 2028 contract prices.^2,17

What would prove this wrong

✕Gross margin falls below 55% as calendar 2028 contracts are priced.
✕Cloud customers cut or defer exabyte orders for two straight quarters.
✕Western Digital's HAMR drives ramp on time and cut its costs below Seagate's.
✕Toshiba buys TDK's heads unit and Seagate's head costs jump.

Our ratingHoldas of Nov 2 close, $593.76 · what ratings mean

Forecasts keep rising, but at about 22 times average earnings across the cycle, against a five-year median of 13, Seagate should only match the S&P 500.

12-month target: $726.42 (+22.3%)
Plus dividend: +0.5%
S&P 500, same method, with dividends: +18.5%
Expected vs the market: +4.3 points

The math behind the recommendation

Three 12-month price scenarios, weighted by probability, compared with the S&P 500 under the same method.

Now $593.76

Target $726.42

bull case30% likely

$947.30 +60%

Calendar 2028 contracts reprice higher, Mozaic 4 lifts exabytes about 25% a year, and fiscal 2028 earnings land near the top of forecasts.

$47.15 mid-cycle earnings per share × 20.1 = $947.30

base case50% likely

$682.58 +15%

Prices keep rising as contracts roll, gross margin stays above 55%, and fiscal 2028 earnings match the roughly $63 a share consensus.

$42.19 mid-cycle earnings per share × 16.2 = $682.58

bear case20% likely

$504.72 -15%

Toshiba's added output and Western Digital's HAMR ramp loosen supply, 2028 contract prices flatten, and fiscal 2028 earnings fall toward the low forecast.

$36.56 mid-cycle earnings per share × 13.8 = $504.72

Why these odds: Analysts raised fiscal 2028 earnings forecasts 15% in 90 days, to about $63 a share, after another beat and guidance above consensus. Toshiba's expansion and Western Digital's HAMR ramp keep a real bear case, so bull odds are only modestly higher.

How the prices are built: Wall Street expects mid-cycle earnings per share of $42.19 for the year starting a year from now (analysts range from $30.93 to $52.10). Today the stock trades at 18.6 times next year's mid-cycle earnings per share; its five-year middle is 13.1. Because mid-cycle earnings per share is forecast to grow fast, valuations are cut 6%, since fast growth rarely keeps its price.^{4,5,6,7,17,18,19}

What tests the call: FQ2 2027 earnings: whether exabytes jump with Mozaic 4 and first word on 2028 contract pricing (Jan 26)

Buy means expected to beat the S&P 500 by 10+ points over 12 months; Sell means expected to trail it by 10+. Inputs gathered Oct 29; the recommendation updates with the price every day. Model-generated, not personalized investment advice. How ratings work · Track record

What the price assumes

At $593.76, Seagate Technology is priced about like the average stock

Seagate Technology trades at 19 times the mid-cycle earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's mid-cycle earnings. That is above its five-year middle of 13.

Analysts expect mid-cycle earnings to grow about 32% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. The price assumes Seagate Technology's mid-cycle earnings grow roughly in line with forecasts, with no premium for doing better.

Seagate Technology multiple: 19×
S&P 500 multiple: 19×
Base case: +15%
Bear case: −15%

The skewOur bear case loses about $1.00 for every $1 our base case makes. That ratio, how much you stand to lose against how much you stand to make, is the skew.

Where the cycle stands

Gross margin went from 21% to 58% in three years; after its last peak it fell by nearly a third

Hard drive margins follow the balance of supply and demand. In fiscal 2022 Seagate earned a 30% gross margin. A year later it was 21%, adjusted earnings fell to 19 cents a share, and under standard accounting Seagate lost $529M.

This cycle differs in two ways. Most supply is allocated through calendar 2028 under agreements, and Seagate is growing capacity per disk rather than drive count. Both slow the next downturn's arrival. Neither stops buyers from cutting orders once contracts expire.^1,3,4,5,6

Fiscal year	Revenue	Gross margin (non-GAAP)	EPS (non-GAAP)
2022	$11.66B	30.1%	$8.18
2023	$7.38B	21.1%	$0.19
2024	$6.55B	25.5%	$1.29
2025	$9.10B	35.8%	$8.10
2026	$12.20B	46.1%	$15.58
Q1 2027 (one quarter)	$4.23B	57.8%	$7.68

Where we landWe value Seagate on average earnings across the cycle, not this year's. On that basis it trades well above its five-year norm, which is why the stock needs prices to hold into 2028, not just this quarter's beat.

Last earnings

FQ1 2027 results, reported Oct 27

Seagate beat estimates, guided December-quarter revenue to $4.8B, about 70% above a year earlier, and cut debt to $1.6B.^{1,2,15,16,17,13}

Reported Oct 27	Expected	Actual	Difference
Earnings per share	$7.36	$7.68	+4.3%
Revenue	—	—	—

Beat expectations in 6 of the last 7 quarters

Stock reaction: Fell about 4% before the open on Oct. 28, then closed up 4.5% at $697.97

Why the stock moved

Positive: December-quarter guidance of $9.20 a share and $4.8B revenue topped consensus of about $8.66 and $4.5B.
Weighing: exabytes shipped were flat from June while Seagate held Mozaic 4 drives for customer tests.
Weighing: the finance chief said some outside components cost much more than a year ago.
Context: the stock had fallen 29% since Oct. 1 on Toshiba's expansion, TDK heads reports and a chip selloff.

What it means for the stock: Strengthened the earnings case: prices are rising faster than before and contracts reach into 2028. It left the supply question open, since Seagate's shipments stalled while Western Digital's grew.