Seagate CEO: The more expensive NAND is, the more competitive advantage HDDs have; there is still significant room for gross margin expansion.

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The surge in NAND flash prices is bringing structural benefits to the hard disk drive (HDD) market. Dave Mosley, CEO of Seagate Technology, stated at a Bank of America Securities investor conference call that rising NAND prices are prompting customers to reassess their storage architecture. HDDs are continually strengthening their comparative advantage in total cost of ownership (TCO), and the company still has significant room for gross margin expansion.

Mosley disclosed at the meeting that Seagate has completed certification of the first-generation HAMR product, Mozaic 3, for all planned cloud service providers (CSPs), and two customers have completed certification of the second-generation product, Mozaic 4, which offers up to 4TB per platter and single drive storage capacity of approximately 44TB. He pointed out that global nearline HDD annual demand is rising from 1.5 zettabytes (ZB) to about 2 ZB, which is more than four times the total data center NAND storage capacity worldwide; relying only on NAND simply cannot meet this massive storage demand.

In terms of profitability, Bank of America Securities data indicates that Seagate’s incremental gross margin continues to exceed 70% year-over-year. The company possesses dual paths of price increases and cost reduction for improvement. BofA analyst Wamsi Mohan noted that, based on his tracking, the current HDD secondary market trading price reaches $20–$25 per TB (some are refurbished drives), while Seagate’s current quoted price is about $14, showing obvious room for price increases.

Supported by this outlook, Bank of America Securities maintains a buy rating on Seagate and raised its 12-month target price from $840 to $900, based on expected 2027 EPS of $29.28, corresponding to a 31x valuation, up from the previous 29x, reflecting greater confidence in demand sustainability and pricing stability.

NAND Price Surge Highlights HDD Competitive Advantage

Mosley clearly stated that HDDs continue to outperform NAND in TCO, and this advantage is further accentuated by the recent sharp rise in NAND prices. He noted that the price trend of NAND has prompted customers to proactively seek more performance support from Seagate, which now features dual actuator HDD capabilities, and can technically expand to four actuators to meet some high-performance workloads that formerly favored NAND.

In terms of scale, Mosley cited data showing global nearline HDD annual demand is currently about 1.5 ZB and expected to soon reach 2 ZB, more than four times the total global data center NAND capacity.

He believes that the mainstream data center storage architecture of "small memory up front + HDD at the back end" is highly solidified, "and this architecture will exist for the long term." He also pointed out that market discussions often overlook the substitution relationship between NAND and DRAM, while focusing too much on HDD, but HDD’s irreplaceability in large capacity storage scenarios is even more prominent.

Dual Engines for Gross Margin Expansion: Pricing and Costs Driving Together

BofA Securities data shows that Seagate’s incremental gross margin continues to exceed 70%, and the company has two paths for gross margin expansion: pricing and costs.

On pricing, Mosley said price increases would advance in a stable, rhythmic manner, rather than the steep quarterly spikes seen with NAND. Wamsi Mohan noted that per TB prices are expected to rise above $20 over time, and secondary market transactions at $20–$25 per TB indicate market acceptance of higher pricing.

On costs, Seagate’s core advantage lies in sharing platform architecture across generational products–from 3TB per platter to 4TB and 5TB, most non-critical components do not require replacement, effectively lowering technical iteration costs and supply chain risks. Mosley stated that with each generational capacity leap in HAMR technology, the company will achieve a better per TB cost structure, and has seen technical routes to over 10TB per platter. BofA forecasts Seagate’s operating margin will rise from 21.1% in fiscal 2025 to 47.4% in fiscal 2028.

HAMR Accelerates Penetration, Clear Technology Roadmap

The commercialization of Seagate’s HAMR technology is entering an accelerated phase.

Mosley revealed on the call that Mozaic 3 has completed certification for all planned CSPs, while the second-generation product Mozaic 4 (4TB per platter, about 40–44TB single drive capacity) has been certified by two customers—a recent development. He expects the third-generation product with 5TB per platter will be launched before the end of next calendar year, and the relevant technology roadmap has been shared with customers to facilitate their synchronized data center planning.

Mosley said HAMR product certification speeds are approaching the efficiency of mature magnetic recording products, and customers' early technical doubts have basically dissipated. The new generation products are now passing certification tests through routine processes. He believes the S-curve for HAMR technology is still climbing, internal photonics technology (key to enabling higher platter capacity) continues to break through, and technological evolution will not stop at 10TB per platter.

On operational flexibility, Mosley stated that shared platform architecture gives Seagate a strong ability to allocate resources in response to demand fluctuations—if a customer reduces orders for high-capacity drives, the company can quickly reconfigure the same heads and platters for mid- and low-capacity products, supplementing market demand with a better cost structure.

Demand Structure: Spreading from Hyperscale to Enterprise Edge

Mosley characterizes current HDD demand as structural growth and clearly states the company has not observed any signs of inventory hoarding; shipped drives have been confirmed for actual deployment in data centers. He noted that more than 25% annual storage capacity growth is a huge figure; in the company’s view, this growth rate may persist for the next five years.

Multiple factors are driving demand: the continued explosive growth of video content; large language models require vast unstructured datasets for inference; robotics and physical AI training need real-time sensor data; storage needs for data snapshots and model checkpoints during AI decision processes are also rising. Mosley further pointed out that CSPs’ cross-regional, multi-format storage of video content (to adapt to different screen sizes and resolutions) significantly increases the number of copies and total storage.

On client structure, Mosley said that apart from hyperscale cloud providers, traditional enterprise data centers and edge application demand have shown a clear recovery in the past two quarters, consistent with previous statements in company quarterly reports.

He believes the penetration of unstructured workloads into the edge—whether driven by sovereign data reasons or low latency requirements—will continuously open incremental space for HDD in edge markets, and related demand is still in its early stages.

Deleveraging Near Completion, Buyback Cycle Approaching

Mosley stated that the company’s primary focus this year is debt optimization, which is nearing completion. He expects that, given a stable market environment, next year’s capital return will tilt towards shareholders, and the buyback intensity is likely to increase. He also mentioned that capital expenditure will remain at 4%–6% of income, mainly for upgrading manufacturing tools and increasing magnetic recording density capability, and future acquisitions are expected to remain small and supplementary.

In terms of financial data, BofA predicts Seagate’s free cash flow will rise sharply from $818 million in fiscal 2025 to $2.717 billion in fiscal 2026 and further to $4.163 billion in fiscal 2027, providing ample ammunition for future buybacks. BofA expects EPS to increase from $8.11 in 2025 to $14.94 in 2026 and $24.56 in 2027, with dynamic price-to-earnings ratios of roughly 54x and 33x, respectively, based on the current stock price.

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