AI benefits are greater than expected! Soaring demand, ultra-high gross margin, “hard drive giant” Seagate Technology’s stock price surges to a new high.
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The data storage demand triggered by AI is reshaping the hard drive market landscape with greater-than-expected momentum. Driven by this, hard drive manufacturer Seagate Technology saw its stock price soar to a historic high on Wednesday, thanks to quarterly results that far exceeded expectations and strong future guidance.
According to the financial report, for the fiscal first quarter ending in September, Seagate's adjusted earnings per share were $2.61, a year-on-year increase of 65%, significantly higher than the $2.40 expected by FactSet analysts. Sales for the same period increased by 21% to $2.63 billion, also exceeding the market's consensus of $2.55 billion, indicating extremely strong demand from the AI and data center markets.
According to Trading Desk news, Morgan Stanley stated in a report released on the 29th that this outstanding performance came from more favorable pricing and a product mix shift toward higher-capacity hard drives. Data show that of the nearline hard drives shipped in the quarter, over 80% had a capacity of 24TB or higher.
Looking ahead, Seagate expects sales in the current quarter to reach $2.7 billion (mid-point), again above analysts' estimate of $2.67 billion. CEO Dave Mosley told analysts that AI is profoundly changing hard drive demand, and that its large-capacity hard drive production contracts for the cloud market are basically filled through 2026, with demand visibility “clear” through 2027.
Strong results and an optimistic outlook quickly ignited market enthusiasm. Seagate's share price surged 19.1% to close at $265.62 on Wednesday, setting a historical record. So far this year, the data storage giant's stock has gained more than 200%. Rival Western Digital also benefited, rising 15% on Wednesday.
Results Exceed Expectations Across the Board, Gross Margin Is the Biggest Highlight
According to data released by Seagate, its fiscal 2026 Q1 revenue reached $2.63 billion, up 21.3% year-on-year, 3% above both Morgan Stanley and the broader market's expectations. This growth was mainly driven by the data center business, with nearline hard drive shipments reaching 159EB (Exabytes), a 39% increase from last year.
Morgan Stanley said the most notable metric in the report was gross margin. The company's non-GAAP gross margin for the quarter reached 40.1%, 150 basis points higher than market expectations, and the company achieved its 40% gross margin target two to four quarters ahead of schedule.
Wedbush analyst Matt Bryson also stated that Seagate’s profitability exceeded expectations, providing upward momentum for the stock. He noted:
“Previously, expectations were for Seagate to reach 40% gross margin (GMs) by year end, but they achieved that a quarter early.”
More importantly, Seagate’s guidance for Q2 implies its gross margin will reach about 41%. Bryson added:
“Assuming management remains as conservative as always and the company executes as planned, we wouldn’t be surprised if Seagate ultimately exceeds this expectation.”
Analysts Bullish: Market “Extremely Eager for Storage”
Seagate management reiterated that there are no new hard drive manufacturing or head/platter capacity plans in the industry. “What we call increasing capacity is actually achieved through product transformation,” Mosley said:
“We are not really increasing unit capacity.”
After Seagate’s financial report, Wall Street analysts raised their price targets and reiterated their optimistic outlook for AI-driven storage demand growth.
Morgan Stanley raised its net profit forecasts for Seagate in fiscal 2026 and 2027 by 5-7%, raised its price target from $265 to $270, and reiterated its ‘Overweight’ rating. The target price is based on their forecast of $15.40 EPS for fiscal 2027 and a 17.5x PE multiple. The analysts also noted that even after raising their forecasts, they believe their models are “still conservative.”
Evercore ISI analyst Amid Daryanani reiterated his “Outperform” rating on Seagate shares and set a price target of $330. He believes:
“Seagate is well positioned to profitably capture the growing demand for high-capacity storage driven by AI workloads.”
Barclays analyst Tom O’Malley said the latest results show the market is still “extremely eager for storage.” Although he maintained a “Neutral” rating on Seagate stock, he raised the price target from $200 to $240. Wedbush analyst Matt Bryson likewise reiterated an “Outperform” rating and raised the price target from $260 to $290.
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