Seagate Earnings: Stronger Industry Conditions Drive Further Margin Gains

Key Morningstar Metrics for Seagate Technology

• Fair Value Estimate
  : $700.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

What We Thought of Seagate Technology’s Earnings

Seagate Technology’s STX profitability climbed in its fiscal first quarter, with management expecting further revenue and margin gains. Revenue rose 61% year over year, incremental gross margin was 88%, and earnings per share rose nearly 200%.

Why it matters: Like peer Western Digital, Seagate is seeing a continued strong pricing environment. Contract renewals support stronger pricing, while Mozaic 4 qualifications should lift storage-capacity shipments in December.

• Management expects pricing to lead to another margin step-up in December. Contract renewals and higher-capacity drives support further gains, although component inflation and normal transition costs limit how directly we can extrapolate recent margins.
• Meanwhile, Mozaic 4 qualifications are well underway, and management reiterated a step-up in shipments slated for December. These density gains are another key margin driver for the company. Seagate’s non-GAAP gross margin reached 57.8%, close to its rival’s 58.1%.

The bottom line: We are maintaining our fair value estimate of $700 per share for no-moat Seagate. We have increased our near-term estimates slightly, based on the strong results (our fiscal 2027 non-GAAP EPS estimate is raised 5%), but our longer-term projections remain largely unchanged.

• The stock is down 6% after-hours, at $627 per share. At only a 10% discount to our fair value, we would wait for a better entry for this highly volatile name that is inherently tied to the strength of the AI buildout to maintain the current pricing environment.
• We continue to project a cycle turn by fiscal 2031 and beyond, with per-terabyte pricing and margins declining.

Coming up: Nearline supply allocations extend through calendar 2028, with some agreements through 2030. Pricing terms only seem to lock in one year in advance, though, currently set through calendar 2027. Pricing resets post-2027 remain an opportunity and a risk, depending on demand.