The Zhitong Finance App learned that AI data center construction continues to drive demand for enterprise-grade hard drives, driving further improvements in Seagate Technology (STX.US)'s performance and profitability. However, although the company's latest quarterly performance has exceeded market expectations, Wall Street still has clear differences over whether the tight supply and demand situation in the hard drive industry can continue and whether related stock valuations are reasonable.
According to Seagate's results for the first quarter of fiscal year 2027, revenue for the quarter ending September increased 61% year over year to US$4.233 billion, and non-GAAP diluted earnings per share were 7.68 US dollars, all higher than market expectations. Among them, data center business revenue increased 63% year over year to US$3.449 billion. Benefiting from strong product pricing, the company's gross margin rose to 57.8% and operating margin reached 50.7%.
Seagate expects revenue for the second quarter of fiscal year 2027 to reach 4.7 billion to 4.9 billion US dollars, with a median value of 4.8 billion US dollars; non-GAAP diluted earnings per share are expected to be 9.00 to 9.40 US dollars, with a median value of 9.20 US dollars, all higher than Wall Street's previous general expectations.
J.P. Morgan pointed out that Seagate's average sales price per TB rose by about 32% year on year in the previous quarter, which is significantly higher than 11% in the previous quarter, reflecting strong demand from cloud computing customers while industry supply continues to be tight. Meanwhile, Seagate's hard drive storage capacity shipments increased by about 21% year over year, a relatively moderate increase, indicating that the company's current revenue growth is more driven by rising prices.
Seagate management expects the growth rate of storage capacity shipments to accelerate markedly in the second fiscal quarter as shipments of next-generation Mozaic 4 products expand. The company also expects medium- to long-term storage capacity shipments to maintain an annual growth rate of about 25% in the future.
On the demand side, AI inference and intelligent applications are increasing data generation and storage requirements. J.P. Morgan notes that the vast majority of Seagate's near-line hard drive supply has been allocated to 2028, and supply agreements for some cloud customers have even been extended to 2030, indicating that large technology companies are locking in storage resources for the next few years ahead of schedule.
Next-generation HAMR technology has become another key for Seagate to increase production capacity and profitability. Seagate is expanding the supply of Mozaic 4 hard drives to two major cloud service providers and plans to complete product certifications for more customers in the coming months. The product uses heat-assisted magnetic recording (HAMR) technology, which can increase the storage capacity of a single disk without significantly increasing the number of hard drives produced.
Goldman Sachs, on the other hand, believes that Seagate's performance is steady, but with investors' expectations already at a high level, the latest financial report may not be enough to further push the stock price increase. The bank pointed out that Seagate's revenue and profit for the first fiscal quarter were slightly higher than market expectations, while the second-quarter results guidance clearly exceeded expectations. However, after Western Digital previously announced strong results, market expectations for Seagate have clearly heated up, so even if the company hands over a steady report card, the stock price may still face pressure in the short term.
However, Goldman Sachs continues to be optimistic about Seagate's profit growth prospects. The bank believes that the current tight supply and demand in the hard drive industry and the increasing share of high-capacity products will continue to support the expansion of product pricing and profit margins. Seagate's first fiscal quarter storage capacity shipments increased by about 21% year over year, but the price per unit of storage capacity increased by about 33% year over year. Management expects this strong pricing trend to continue in the 2027 fiscal year, and expects revenue and profit margins to improve quarterly over the next few quarters.
Goldman Sachs is particularly optimistic about the profit contribution brought about by the HAMR technology upgrade. As Mozaic 4 products begin to be supplied in batches to two hyperscale cloud service providers and the scope of customer certification is gradually expanded, Seagate is expected to further increase the share of high-capacity hard drives shipped. Goldman Sachs expects HAMR technology products to account for about 70% of Seagate's shipments by 2027, driving the company to achieve higher profit growth than the industry average.
At the same time, Goldman Sachs also reminded investors to pay attention to the industry's potential supply expansion risks. The bank pointed out that Toshiba may drastically increase hard drive production capacity, thereby challenging the current tight supply and demand pattern. Although Seagate management believes that competitors' expansion of production is unlikely to clearly disrupt the balance between supply and demand in the industry, Goldman Sachs believes that this potential change may still limit the valuation multiples of hard disk companies.
Based on stronger revenue and gross margin prospects, Goldman Sachs raised Seagate's future profit forecast by an average of about 11% and maintained a “buy” rating. However, considering the decline in peer valuation multiples, the bank lowered Seagate's 12-month target price from $960 to $900, and the target price-earnings ratio adopted was also reduced from 24 times to 20 times.
In contrast, J.P. Morgan is more optimistic about the medium- to long-term prospects for the hard drive industry. J.P. Morgan maintains Seagate's “plus” rating and a target price of $1,050, and raised its profit forecast for the next two fiscal years. The bank believes that the continuous expansion of AI infrastructure by cloud computing giants, combined with the relatively restrained expansion of production capacity in the hard disk industry, will continue to support product prices and corporate profits.
The bank pointed out that the vast majority of Seagate's near-line hard drive supply has been distributed until 2028, and supply agreements for some cloud customers have even been extended to 2030. As AI inference and smart applications continue to increase data storage requirements, the industry's supply and demand gap is likely to expand further. The bank expects that HAMR technology upgrades and product pricing improvements will jointly drive Seagate's profit margins to continue to expand.
UBS maintained Seagate's “neutral” rating and lowered its target price from $780 to $750. The bank believes that although the current demand for hard drives clearly exceeds supply, the market may overemphasize the benefits of tight supply in the short term. As major vendors advance HAMR technology upgrades, the industry's overall storage capacity supply is likely to grow at an accelerated pace in the future.
At the same time, UBS pointed out that Toshiba's potential expansion of production capacity may change the current competitive pattern, and that the valuation of hard disk companies should not be higher than that of DRAM memory chip companies for a long time. As a result, although Seagate's profit prospects are still strong, the bank expects the valuation multiples of the relevant stocks to face downward pressure.
Overall, Seagate's latest earnings report further confirms that AI infrastructure investment continues to be channeled into the data storage sector. However, while rising hard drive prices, HAMR technology upgrades, and long-term supply agreements support profit growth, the industry's future new production capacity and valuation level are also becoming the focus of debate on Wall Street.