Seagate Technology Holdings plcSTX has emerged as a key beneficiary of the AI infrastructure boom. The stock has climbed 200.8% year to date, substantially outpacing the Zacks Computer-Integrated Systems industry's uptick of 103.4%. This reflects investors' growing conviction that AI data centers will require enormous amounts of storage. STX has also outpaced the Zacks Computer & Technology sector and the S&P 500's growth of 16.9% and 11.8%, respectively.
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The company has surpassed its closest HDD competitor, Western Digital Corporation WDC, as well as industry peers like Advanced Micro DevicesAMD and International Business Machines Corporation IBM. WDC and AMD have gained 161.6% and 119.8%, respectively, during the same time frame, while IBM has fallen 21%.
STX has a 52-week high of $1,145. However, after such a spectacular rally, the obvious question for investors is whether Seagate has become too expensive. STX is no longer a conventional value stock, but its underlying business momentum suggests the rally may have further room to run, provided AI-driven storage demand remains strong.
HAMR & Mozaic Sharpen STX's Competitive Position
Cloud providers and hyperscalers are increasingly deploying high-capacity HDDs because these remain significantly more economical than SSD for storing massive datasets that do not require the fastest possible access. Seagate's fiscal 2026 results demonstrate how powerful this trend has become. Revenues increased 34% to $12.2 billion, while the company generated a record $3.1 billion in free cash flow. Non-GAAP gross margin jumped to 52.7% from 37.9% in the fiscal fourth quarter while non-GAAP EPS more than doubled to $5.71.
One of Seagate's key competitive advantages is its progress with HAMR technology. Its Mozaic platform and HAMR roadmap position the company to address rising exabyte demand. Management has also indicated that the technology is scaling with major cloud customers. Seagate is advancing storage density through HAMR and its Mozaic platform, with Mozaic 4 supporting up to 44TB per drive and Mozaic 5 expected in late 2027. HAMR adoption is accelerating, with 40% of nearline exabytes already on HAMR drives.
Strategic investments in HAMR tools, media and heads are expanding capacity and improving yields, though product transitions add factory complexity and near-term costs. The company remains confident in long-term demand and supply capacity. Cloud data centers account for 90% of exabyte shipments, while AI inference, agentic applications and unstructured data are driving greater data retention and tiered-storage demand. Hyperscalers, neoclouds and on-premises data centers are expected to support sustained growth.
Seagate targets a mid-20% exabyte CAGR, with recent growth exceeding 30%. Strong demand is supporting value-based pricing, while higher-capacity drives are boosting exabyte output without requiring higher unit volumes. AI, video, sensors, robotics and autonomous vehicles will continue generating massive volumes of unstructured data, creating a growing need for high-capacity, tiered storage across data centers and at the edge.
STX's Investment Outlook Highlights AI-Driven Storage Growth
Looking ahead to the September quarter, strong build-to-order visibility reinforces Seagate's confidence in sustained demand for high-capacity nearline drives as AI adoption accelerates. The company expects continued revenue and profitability growth, supported by the ongoing Mozaic ramp and favorable pricing. Management anticipates fiscal first-quarter revenues of $4.1 billion (+/- $100 million). At the midpoint, this indicates a 56% year-over-year improvement. STX is therefore entering fiscal 2027 with strong demand visibility, improving pricing and an expanding high-capacity product portfolio.
Seagate is not generating growth at the expense of cash flow. In fiscal 2026, operating cash flow reached $3.7 billion and free cash flow hit $3.1 billion. The company also reduced debt by $1.4 billion and returned $810 million to shareholders through dividends and buybacks. It subsequently extinguished $1 billion of high-yield notes in July and plans to retire the remaining convertible-note balance in September. Lower debt should reduce interest expense and provide greater flexibility for dividends, share repurchases and technology investments.
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Nonetheless, Seagate faces execution risks from HAMR transitions, including manufacturing complexity, qualification delays and yield issues. Customer concentration, tariffs, FX and intense competition from Western Digital, SSD providers and other storage vendors also pose risks.
Improving Estimate Revision Trend for STX
STX is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2027 have moved up 28.7% to $36.09 over the past 60 days, while the same for fiscal 2028 has gone up 17.8% to $58.28.
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STX's Valuation Remains Elevated
Going by the price/earnings ratio, the company's shares currently trade at 20.96 forward earnings, higher than 11.64 for the industry. If AI spending remains robust and hyperscalers continue expanding storage capacity, earnings could grow fast enough to bring the valuation down organically.
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In comparison, the forward 12-month price/earnings multiple for AMD, IBM and WDC are 42.26X, 18.09X and 20.36X, respectively.
Should You Buy STX?
Seagate has gone from being a traditional HDD manufacturer to becoming an increasingly important AI infrastructure play. Its record fiscal 2026 results, strong fiscal 2027 outlook, improving margins and HAMR strength provide a credible foundation for further earnings growth. The investment thesis is supported by AI-driven data growth, which is creating sustained demand for high-capacity storage, while HAMR and the Mozaic platform can boost storage density, pricing power and profitability. At the same time, stronger cash flow and an improved balance sheet provide greater flexibility for continued shareholder returns.
The combination of rapid revenue growth and dramatic margin expansion is a major reason investors have been willing to pay a premium for STX. Boasting a Zacks Rank #1 (Strong Buy) currently, STX looks like a buy for investors with a multi-year horizon. You can see the complete list of today's Zacks #1 Rank stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
