Seagate Technology (NASDAQ: STX) has delivered a remarkable turnaround, transforming from a cyclical hardware name into a high-growth beneficiary of the global data explosion. The stock has gained 310% since my recommendation on January 2025 and the fundamental is still looks good. The company’s Q2 2026 earnings highlight accelerating revenue, surging earnings, and a sharp rebound in free cash flow as demand from cloud and enterprise customers strengthens. While Seagate’s stock have already posted extraordinary gains, Seagate’s improving fundamentals, expanding margins, and strong forward growth outlook suggest that the stock may still offer attractive upside. In this article we will dive into Seagate’s recent earnings, stock performance & valuation, growth potential, and the risks investor should consider.
About Seagate Technology
Seagate Technology is a global
leader in data storage solutions, best known for its hard disk drives (HDDs)
and enterprise storage products. Founded in 1979 and headquartered in Fremont, California, the company operates manufacturing and engineering facilities across
the United States and Asia. Seagate designs and produces storage solutions for
cloud data centers, enterprise customers, and personal computing markets,
playing a vital role in supporting hyperscale cloud infrastructure, AI
workloads, edge computing, and long-term data archiving as global data
generation continues to grow rapidly.
Seagate Financial Performance
Seagate Technology delivered
strong financial performance in Q2 2026, with revenue for the quarter ended
December 2025 reaching $2.82 billion, up from $2.32 billion in Q2 2025,
representing a 21.5% year-over-year increase, while EPS rose to $2.60 from $1.55,
reflecting robust 67.74% growth. On a trailing twelve-month basis, revenue
increased to $10.06 billion compared to $8.03 billion in Q2 2025, a 25.18%
increase, and TTM EPS climbed to $8.88 from $5.45, growing 62.8% year over
year. Free cash flow per share (TTM) surged to $7.54 from $3.17, delivering an
exceptional 137.85% increase, supported by strong profitability with a Gross
profit margin of 38.78%, Net profit margin of 19.59%, and Free cash flow margin
of 16.65%. The company posted a Return on assets of 22.62% and a Return on
equity of 429%, while maintaining a Debt-to-equity ratio of 10.46.
Over the past five years,
Seagate’s financial performance declined through 2023, but the company has made
a turnaround since then. Although its five-year financial performance is not
impressive, the recent rapid turnaround and Seagate’s position to benefit from
AI-driven demand for memory make the stock attractive.
Seagate Fiscal 2026 Financial
Forecast
Looking ahead, analysts forecast
2026 revenue of $11.47 billion, a 26.05% increase from $9.1 billion in 2025,
and project non-GAAP EPS of $12.94, up 59.75% from $8.1, with Wall Street
assigning a Buy rating, an average price target of $435.73 implying -1.96%
downside, and a high target of $505, offering 13.62% upside from current
levels.
STX Stock Price Performance
and Valuation
At the time this article was written Seagate’s stock was trading at $444.45. The stock has delivered a remarkable 375.4% gain over the past year, vastly outperforming the S&P 500’s 15.4% increase during the same period, while over the past five years the stock is up 540%, compared to the S&P 500’s 77.9% gain.
Despite this strong
rally, the valuation remains supported by Seagate’s growth outlook, with a P/S
(TTM) ratio of 9.21 and a forward P/S of 8.23. The stock trades at a non-GAAP
P/E (TTM) of 42.4 and a more attractive forward non-GAAP P/E of 33.46. While
the P/FCF (TTM) ratio is 57.86.
Based on Fiscal.ai data, if we
look at valuations over the past five years, the forward P/S, forward P/E, and
P/FCF are all above average. Although the stock currently trades above its
historical averages, projected 2026 revenue growth of 26% and EPS growth of 59%
make Seagate’s stock look attractive, especially given the strong AI-driven
demand for memory.
Seagate Growth Potential
Seagate growth potential remains
strong, driven by several factors.
- Explosive AI-Driven Data
Center Demand
Seagate’s Q2 fiscal 2026 results show that artificial intelligence has become its main growth engine. Data center revenue now contributes about 80 percent of total sales and has grown rapidly, supported by strong AI-led storage demand. The broader AI storage market is expected to grow at a very fast pace over the next decade, creating a large opportunity that fits Seagate’s roadmap.
Cloud providers are expanding AI infrastructure to train and deploy large language models, generating huge volumes of data that need long-term, cost-efficient storage. Hard disk drives remain far cheaper per terabyte than solid-state drives, reinforcing demand for Seagate’s high-capacity products. Long-term contracts with major cloud customers and tight supply conditions support strong revenue visibility and a durable growth trajectory. - Breakthrough HAMR Technology
and Product Roadmap Advancement
Seagate's successful ramp of heat-assisted magnetic recording (HAMR) technology through the Mozaic 3+ platform creates a fundamental technological moat, differentiating it from competitors while driving margin expansion. In Q2 2026, the company achieved a record non-GAAP gross margin of 42.2 percent, up 210 basis points sequentially, fueled by premium pricing on higher-capacity HAMR drives. Seagate now ships 32TB drives to major cloud providers and has sampled industry-leading 36TB units.
Lab demonstrations exceeding 6TB per platter position it for 100TB+ drives over the next decade. Most cloud providers have qualified Mozaic HAMR drives, with volume production ramping; management expects over half of exabyte shipments to be Mozaic HDDs by late 2026. These drives deliver 300 percent more capacity in the same form factor, addressing cloud infrastructure constraints and cost-per-terabyte economics effectively. - Structural Business Model
Reorganization and Durable Competitive Positioning
Seagate's strategic restructuring from fiscal Q1 2026 reorganizes the company around two core markets which is Data Center (80% of revenue) and Edge IoT (20%) creating a focused, efficient model aligned with growth trends. This clarifies priorities and enables tailored products for distinct segments. The data center benefits from long-term supply contracts with major cloud providers, ensuring revenue visibility through 2027 backed by infrastructure needs, not discretionary spending.
Edge IoT covers consumer, client, and NAS applications, with expected December quarter improvement from video/imaging, edge computing, and consumer demand. As the top exabyte producer and sole maker of 3.6TB-per-platter drives at scale, Seagate holds a strong moat via HAMR areal density leadership. Regional expansion into India, Middle East, Turkey, and Africa captures emerging data growth, reducing single-market dependence.
Risks to Consider
While Seagate looks compelling,
we should be mindful of potential risks.
- Cyclical Revenue Volatility
Seagate's revenue has declined at an annual rate of 3.8% over the past five years, primarily due to the cyclical nature of the semiconductor and storage industry. This volatility leads to unpredictable demand cycles, exposing investors to alternating periods of sharp growth and significant contractions. Such fluctuations are particularly pronounced as enterprise spending varies with economic conditions, heightening investment uncertainty in the sector. - Technology Disruption Threat
Seagate's heavy reliance on hard disk drives (HDDs) exposes it to advancing solid-state drive (SSD) technologies and narrowing cost gaps, which threaten to erode its dominance in mass-capacity storage markets. Delays in deploying Heat-Assisted Magnetic Recording (HAMR) technology could exacerbate this vulnerability, allowing competitors like Western Digital to capture greater market share and intensify competitive pressures on Seagate's position. - High Debt Burden
STX carries nearly $4.8 billion in debt, with a debt-to-equity ratio exceeding 10.4, which signifies very high leverage and exposes the company to significant vulnerability from interest rate fluctuations or economic downturns. This fragile balance sheet structure amplifies overall investment risks, particularly during periods of economic uncertainty when refinancing pressures and reduced cash flows could strain operations further.
Conclusion
Seagate Technology demonstrates a compelling combination of strong financial performance, accelerating earnings growth, and solid long-term demand drivers tied to global data expansion and AI adoption. Despite its significant stock price appreciation, the company’s improving margins, robust free cash flow generation, and attractive forward growth outlook support its current valuation. While risks such as cyclicality and leverage remain, Seagate’s market leadership and favorable analyst expectations make the stock an appealing long-term investment opportunity for growth-oriented investors.
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