Seagate reported Q4 revenue of $3.6 billion, a 48% year-over-year surge, with earnings per share of $5.71—far exceeding expectations—and a record-high gross margin of 52.7%. Even more striking: cloud data center capacity is already booked through 2028, with customer planning extending into 2029 and beyond, as the supply-demand gap continues to widen. Soaring AI-driven storage demand, combined with volume ramp-up of HAMR technology, prompted Citi to raise its price target to $1,300—delivering a strong confidence boost to the storage sector, which had recently faced heavy selling pressure.
$Seagate Technology (STX.US)$ A better-than-expected earnings report and stronger guidance provided critical support for AI storage stocks facing sell-offs: demand from cloud data centers remains robust, supply constraints continue to underpin pricing, and customer planning horizons have extended to 2029 and beyond.
On July 28 (U.S. Eastern Time), Seagate Technology reported fourth-quarter revenue of $3.6 billion, up 48% year-over-year, exceeding the FactSet consensus estimate of $3.5 billion; adjusted earnings per share came in at $5.71, also surpassing the market expectation of $5.10.
More importantly, management issued even stronger forward-looking signals during the earnings call.
CEO Dave Mosley stated that revenue growth for fiscal year 2027 is expected to exceed the 34% growth seen in fiscal year 2026; CFO Gianluca Romano noted that the company anticipates sequential quarterly increases in both revenue and gross margin throughout fiscal year 2027.
The market quickly repriced.
Seagate shares fell 8.5% in regular trading on Tuesday but rose as much as 6.6% in after-hours trading; Western Digital gained 3% after hours, while SanDisk, Micron, and SK Hynix ADRs also rebounded.
For the memory and semiconductor sector, which had just suffered a sharp correction, Seagate’s results served as a strong confidence booster.
The earnings beat directly reversed after-hours sentiment.
Seagate delivered not only a 'beat' this quarter but also stronger margin performance.
According to a Citi research report, the company posted $3.63 billion in revenue for the June quarter, up 48% year-over-year; earnings per share were $5.71, a 121% increase year-over-year, exceeding the high end of prior guidance.
Gross margin reached 52.7%, up 570 basis points sequentially and 1,480 basis points year-over-year, exceeding the market expectation of 50.0%. Operating margin stood at 44.6%, also above the market expectation of 42.0%.
In terms of shipment mix, Seagate shipped a total of 218 exabytes (EB) of capacity this quarter, an increase of 9% quarter-over-quarter and 34% year-over-year, with approximately 90% of shipments going to data center customers. Full-year revenue grew by 34% to $12.2 billion, surpassing analysts’ expectation of $12.0 billion; full-year free cash flow hit a record high of $3.1 billion.
Seagate’s guidance for the next quarter was also stronger than market expectations. Citi reported that the company expects first-quarter fiscal 2027 revenue of $4.1 billion, plus or minus $100 million, above the market expectation of $3.78 billion; operating margin is expected to be approximately 50%, compared to the market expectation of 43.4%; and earnings per share are forecast at $7.30, plus or minus $0.20, significantly higher than the market expectation of $5.85.
Demand visibility extends into 2029.
The most critical message from Seagate’s management is that there are no signs of demand slowdown.
In his statement, Dave Mosley said the company’s performance was driven by strong cloud data center demand and disciplined execution, and he expects this momentum to continue into fiscal 2027. He also noted that AI is driving increased data generation, which will create 'sustained, long-term demand for massive-scale storage capacity.'
During the earnings call, management further indicated that the majority of current nearline hard drive capacity has already been allocated through long-term supply agreements extending into the 2028 calendar year. Customers are not shortening their planning horizons; instead, more clients are extending their planning cycles into 2029 and beyond.
This is also Citi’s core rationale for maintaining its bullish stance. In its research report, Citi stated that hyperscale cloud customers, AI workloads, and growing data retention requirements continue to underpin demand, and the company remains in a 'supply-constrained' environment.
Pricing power remains strong, and margins continue to expand.
Pricing was one of the most closely watched topics during this earnings call.
Management stated that the supply-demand gap is wider than it was a few quarters ago, and although Seagate has a small amount of additional capacity, this capacity can be sold at very favorable prices.
Dave Mosley explained that contracts are typically locked in for one year, but when improved product yields free up additional capacity, customers are often willing to pay above the contracted price to secure it.
This means that Seagate’s pricing improvement stems not only from contract repricing but also from premium pricing on incremental capacity amid tight supply-demand conditions.
Gianluca Romano noted that the company’s pricing strategy has been in place for 12 to 13 quarters, with no change in direction. Factors driving gross margin expansion include the continuation of this pricing strategy, an increasing mix of high-capacity nearline hard drives, and cost improvements from the transition to HAMR technology.
He also stated that the company’s incremental gross margin is “well above 60%,” and the implied gross margin in the September quarter guidance is already approaching that level. Citi attributes the margin expansion to tight supply, a favorable product mix, and volume ramp-up of Mozaic 4.
HAMR volume ramp-up enters a critical phase
The technology roadmap represents another key driver of Seagate’s profit elasticity.
According to Citi research reports and management commentary, Mozaic 3 has already completed certification and deployment with major cloud customers. Mozaic 4 is currently ramping up with leading cloud service providers, supporting hard drives of up to approximately 44TB, and is expected to account for 50% of HAMR exabytes (EB) shipped by the end of 2026. Mozaic 5, based on a 5TB-per-platter HAMR platform, is expected to begin certification and shipments by the end of 2027, supporting drives of around 50TB, and will gradually contribute to sales in 2028.
Management indicated that HAMR now accounts for approximately 40% of nearline exabytes (EB) shipped, with a target to increase this share to 50% by the end of 2026.
This also explains why Seagate must continue investing in manufacturing tooling. Gianluca Romano noted that over the past year, the number of heads and platters per drive has increased by 15% to 20%, while total drive shipments have remained largely flat. As products transition from 3TB per platter to 4TB and 5TB, manufacturing processes become more complex and require longer tool utilization time.
New AI-driven demand is still in its early stages, but the direction is clear.
Seagate Technology's management remains cautiously optimistic about AI-related demand, emphasizing that many new use cases are still in their infancy.
During the earnings call, Dave Mosley discussed the relationship between KV Cache and hard disk storage. He noted that in agent-based AI applications, systems need to retain substantial contextual data for each user. As the number of users grows and interaction complexity increases, this contextual data expands significantly. Enterprises prefer not to recompute it repeatedly, thereby generating new storage requirements.
He also mentioned physical AI. Rather than focusing on robotic endpoints themselves, Mosley emphasized the underlying data challenges: sensor-generated data is transmitted back to local clouds or larger-scale cloud infrastructures, and the resulting massive volumes of unstructured video data could become a significant source of demand for hard disk storage.
However, management also stressed that even without considering physical AI, existing enterprise application trends are already favorable for Seagate.
Citi raised its price target while maintaining a Buy rating.
In its July 29 research report, Citi maintained its Buy rating on Seagate Technology and raised its price target from $1,240 to $1,300. Citi stated that Seagate continues to benefit from strong demand, margin expansion driven by HAMR volume ramp-up, and pricing power supported by solid supply-demand fundamentals.
Meanwhile, the company’s capital allocation is also improving. Management indicated that Seagate’s net debt leverage ratio had already declined to 0.4x by the end of fiscal year 2026. An additional $1.2 billion in debt will be repaid in the September quarter, including $1 billion in high-yield senior notes already repaid in July, with the remaining convertible notes due for repayment in September. The company also noted that it is executing a higher-scale share repurchase program this quarter and will continue to do so over the coming quarters.
For investors, the significance of Seagate’s latest earnings extends beyond a single company beating expectations—it provides clearer near-term validation across three key themes: storage demand, pricing, and margins. Amid volatility in AI-related trades, these results have temporarily restored market confidence in the storage cycle.
Editor/Deng