This article first appeared on GuruFocus.
Seagate Technology (NASDAQ:STX) surged 4.5% in premarket trading after crushing quarterly expectations and delivering guidance that reinforced Wall Street's view that AI-driven storage demand is giving hard-drive manufacturers unusually strong pricing power.
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Seagate produces high-capacity hard-disk drives used by hyperscale cloud providers, enterprises and consumers. Its nearline drives store the enormous datasets required for AI training, inference and long-term retention, making the company an increasingly important infrastructure supplier rather than a traditional consumer-storage business.
Fiscal fourth-quarter revenue jumped 49% to $3.63 billion, beating the roughly $3.5 billion consensus, while adjusted earnings more than doubled to $5.71 per share from $2.59. Non-GAAP gross margin reached 52.7%, up sharply from 37.9% a year earlier, and free cash flow totalled $1.1 billion.
Seagate guided for fiscal first-quarter revenue of $4.1 billion, plus or minus $100 million, and adjusted earnings of $7.30 per share, plus or minus $0.20. Both were comfortably above Wall Street expectations. Management also expects fiscal 2027 revenue growth to exceed the 34% recorded in fiscal 2026.
Demand remains exceptionally strong on hyperscalers, AI workloads, and growing data retention, Citi analyst Asiya Merchant wrote. She raised her target to $1,300 from $1,240, while Wedbush, Barclays, Wells Fargo and other firms also lifted their objectives.
The central thesis is scarcity. Much of Seagate's nearline capacity is reportedly allocated through 2028, while customers are planning requirements into 2029 and beyond. Tight supply, higher prices and the ramp of Seagate's Mozaic4 heat-assisted magnetic recording platform are expanding margins faster than analysts previously expected.
Investor Takeaway On Seagate Technology
Investors should monitor average selling prices, exabyte shipments and whether gross margin reaches the 57% to 58% range anticipated for the September quarter. Continued Mozaic4 adoption could reduce cost per terabyte while preserving disciplined industry supply.
The risk is that expectations have risen almost as quickly as earnings. Slower hyperscale spending, customer inventory digestion or unexpected capacity expansion could weaken pricing. Sustained long-term agreements and fiscal 2027 growth approaching Evercore's 45% scenario would instead suggest Wall Street still underestimates the durability of Seagate's AI-storage cycle.