Hard Drives, Hard Gains

Seagate Technology (NASDAQ: STX) is proving that legacy infrastructure plays can still deliver meaningful returns. After soaring more than 80 percent year to date and setting a fresh all-time high, the company remains relevant by being indispensable. Data has to be stored somewhere, and as cloud hyperscalers push into larger AI workloads, the need for cost-efficient, high-capacity storage continues to favor hard disk drives (HDDs).

Seagate has leaned into this demand shift with conviction. Its focus on nearline enterprise HDDs has positioned the company at the center of the cloud infrastructure buildout. These drives are not glamorous, but they are the workhorses of every major data center. The company’s full-year results and new capacity milestones demonstrate that Seagate is both executing well and gaining operational leverage.

What separates Seagate from other hardware suppliers is its forward visibility. With long-term purchase agreements in place through 2026 and strong qualification momentum around its next-generation products, Seagate offers more stability than most would assume for a hardware name. And yet, with HAMR adoption in its early innings and fresh capital allocation tailwinds, there may be far more room to run.

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Financial Performance

Seagate’s full-year 2025 results point to a business firing on all cylinders. Revenue reached $9.1 billion, up 39 percent from the prior year, while net income surged 339 percent to $1.47 billion. Earnings per share climbed to $6.93, compared to just $1.60 in fiscal 2024. Margin expansion played a major role in the turnaround. Profit margins improved to 16 percent from 5.1 percent, driven by a more favorable product mix, growing shipments of high-capacity drives, and operational efficiencies.

The June quarter reinforced this momentum. Revenue came in at $2.44 billion, slightly above analyst expectations, and EPS of $2.59 exceeded consensus by $0.14. Management guided next quarter revenue to $2.5 billion with EPS at $2.30. While that outlook was slightly below Street estimates, analysts viewed the guidance as conservative, especially given growing nearline visibility and the ramp in HAMR drives.

Gross margins are recovering steadily. The company improved gross profit margins by over 200 basis points year over year and expects further expansion as new technologies take hold. Seagate’s leaner operating structure, coupled with ongoing pricing stability and component cost normalization, suggests that margins could continue trending higher into fiscal 2026.

One standout signal was the company’s $5 billion buyback announcement. This amount equates to roughly 15 percent of its current market capitalization. The board’s decision reflects internal confidence in both earnings durability and the valuation opportunity at hand. Seagate also pays a steady dividend with a current yield of 1.83 percent, backed by 15 consecutive years of payouts.

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Growth Catalysts

1. HAMR Rollout Is Gaining Traction

Seagate’s long-term story is tightly tied to its proprietary Heat-Assisted Magnetic Recording (HAMR) technology. This innovation boosts data density by heating the disk surface before writing, allowing more bits to be stored per square inch. HAMR will be instrumental in meeting the storage demands of hyperscale cloud providers, who increasingly need 30TB and 40TB drives to reduce data center footprint and power consumption.

The company has already secured qualifications from three major cloud players and expects to be qualified with every leading provider within the next year. Analysts project that HAMR-based HDDs will account for a significant share of total shipments by mid-2026. With better cost economics and higher performance, HAMR is expected to lift gross margins into the high 30 percent range, with incremental gross margins over 50 percent once scale is reached.

Seagate estimates that HAMR will also unlock mid-20s percentage growth in HDD exabyte shipments through calendar 2028. This is an important compounding driver that should not only support revenue growth, but also operational leverage and pricing discipline.

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2. Cloud and AI Tailwinds

The exponential growth of AI models and cloud-based workloads continues to drive demand for large-scale data storage. AI training sets and inference models generate enormous amounts of unstructured data, which must be stored cost-effectively. HDDs remain the preferred medium for cold and nearline storage due to their lower cost per terabyte.

Seagate’s long-term contracts with top-tier hyperscalers provide confidence in sustained demand. The company also benefits from tight industry supply and fewer competitors, which helps maintain pricing power. As enterprise IT spending recovers and U.S. tax incentives for R&D and equipment investment kick in, Seagate is likely to benefit from accelerated infrastructure buildouts.

3. Capital Allocation Supports the Bull Case

Between the $5 billion buyback plan and consistent dividends, Seagate is returning significant capital to shareholders. The buyback alone is likely to be highly accretive at current prices. With strong cash flow generation and a relatively light debt load, the company can afford to maintain both shareholder returns and reinvestment in technology.

Risks

Seagate’s resurgence is real, but not without vulnerabilities.

• Supply chain fragility: The company has already experienced a $200 million revenue impact from supply constraints related to high-capacity drive production. If component shortages persist or new bottlenecks emerge, Seagate may struggle to meet rising demand.

• SSD competition: Solid State Drives continue to drop in price, closing the cost gap with HDDs. While HDDs still dominate in cold storage, aggressive innovation in NAND flash could eventually tilt the economics, especially for tiered storage solutions.

• End market cyclicality: A slowdown in cloud capex or a shift in enterprise IT priorities could reduce visibility. Although current contracts provide near-term insulation, the storage hardware industry is historically cyclical.

• Technology execution: While HAMR is promising, execution risk remains. Delays in volume manufacturing or qualification setbacks could hinder margin expansion and investor confidence.

Final Word

Seagate has re-emerged as a top-tier infrastructure play at a time when digital storage demand is exploding. With meaningful tailwinds from AI, cloud, and data proliferation, the company is no longer just a cyclical hardware bet. Its differentiated position in nearline HDDs, first-mover advantage in HAMR, and financial discipline make it a compelling long-term investment.

Even after an 80 percent rally this year, the valuation remains attractive on forward earnings, and the business model is gaining strength, not weakening. Seagate is not riding a temporary trend. It is powering the digital foundation of what comes next.

Long-term investors looking for a durable, cash-generating growth story should give Seagate serious consideration. This time, it is not just spinning disks. It is spinning up something much larger.

Action Summary

• Add STX to your infrastructure core watchlist to track ongoing cloud storage demand and pricing power.

• Watch for HAMR shipment updates in earnings reports and conference calls. Early adoption trends may drive multiple expansion.

• Accumulate under $155 as part of a long-term position. Use dips for incremental entries given strong buyback support and future margin upside.