Seagate has provided crucial support for the battered AI storage trade with a better-than-expected earnings report and stronger guidance: cloud data center demand remains robust, tight supply continues to underpin prices, and customer planning horizons have extended to 2029 and beyond.
Seagate Technology reported fiscal fourth-quarter revenue of $3.6 billion on Tuesday, July 28, Eastern Time, a 48% year-over-year increase and above the FactSet consensus estimate of $3.5 billion. Adjusted earnings per share came in at $5.71, also surpassing market expectations of $5.10.
More importantly, management delivered a stronger forward-looking signal during the earnings call. CEO Dave Mosley indicated that revenue growth for fiscal 2027 is expected to exceed the 34% growth seen in fiscal 2026, while CFO Gianluca Romano stated that the company anticipates sequential improvements in both revenue and gross margin for every quarter of fiscal 2027.
The market quickly repriced the stock. Seagate closed down 8.5% in regular trading on Tuesday but rose as much as 6.6% in after-hours trading. Western Digital gained 3% after hours, and SanDisk, Micron Technology, and SK Hynix ADRs also followed the rebound.
For the storage and semiconductor sectors, which have just suffered a heavy setback, Seagate's performance serves as a much-needed shot in the arm.
Better-than-expected earnings directly reverse after-hours sentiment
Seagate delivered not just a "beat" this quarter, but also stronger margin performance. According to a Citigroup research report, the company's June quarter revenue was $3.63 billion, up 48% year-over-year, with earnings per share of $5.71, a 121% increase year-over-year, exceeding the high end of its previous guidance.
Gross margin reached 52.7%, a sequential increase of 570 basis points and a year-over-year improvement of 1,480 basis points, above the market consensus of 50.0%. Operating margin came in at 44.6%, also surpassing the market estimate of 42.0%.
In terms of shipment mix, Seagate's total capacity shipped this quarter was 218 exabytes, up 9% sequentially and 34% year-over-year, with approximately 90% of shipments going to data center customers. The company's full-year revenue grew 34% to $12.2 billion, exceeding analyst expectations of $12.0 billion, while full-year free cash flow reached a record $3.1 billion.
For the next quarter, Seagate's guidance was also stronger than market expectations. Citigroup noted that the company forecasts fiscal first-quarter 2027 sales of $4.1 billion, plus or minus $100 million, above the market consensus of $3.78 billion. Operating margin is expected to be around 50%, higher than the market estimate of 43.4%, and earnings per share are projected to be $7.30, plus or minus $0.20, well above the market consensus of $5.85.
Demand visibility extends to 2029
The most critical statement from Seagate management is that there are no signs of slowing demand. Dave Mosley stated in a release that the company's performance was driven by strong cloud data center demand and disciplined execution, and he expects this momentum to continue into 2027. He also noted that AI is driving more data generation, which will create "sustained long-term demand for mass-capacity storage."
During the earnings call, management further indicated that most of the current nearline hard drive capacity has already been allocated through long-term supply agreements through the 2028 calendar year. Customers are not shortening their planning cycles; instead, more customers are extending their planning horizons to 2029 and beyond. This is also the core reason why Citigroup maintains a bullish view. Citigroup stated in its report that hyperscale cloud customers, AI workloads, and data retention growth continue to support demand, and the company remains in a "supply-constrained" environment.
Pricing power remains strong, margins continue to rise
Pricing was one of the most closely watched issues on the call. Management stated that the supply-demand gap is larger than a few quarters ago. While Seagate has some additional capacity, this capacity can be sold at very good prices. Dave Mosley explained that contracts are typically locked in for one year, but when additional capacity is released due to improved product yields, customers are often willing to pay above-contract prices to secure it.
This means Seagate's price improvement comes not only from contract repricing but also from the premium on incremental capacity in a tight supply-demand environment. Gianluca Romano noted that the company's pricing strategy has been in place for 12 to 13 quarters, with no change in direction. Factors driving gross margin improvement include the continuation of the pricing strategy, an increased mix of high-capacity nearline drives, and cost improvements from the HAMR technology transition.
He also stated that the company's incremental gross margin is "well above 60%," and the gross margin implied by the September quarter guidance is already approaching this level. Citigroup attributes margin expansion to tight supply, a favorable product mix, and the ramp-up of Mozaic 4.
HAMR ramp-up enters a critical phase
The technology roadmap is another key driver of Seagate’s profit resilience. According to Citigroup's research report and management commentary, Mozaic 3 has been certified and deployed at major cloud customers. Mozaic 4 is currently ramping up at major cloud service providers, supporting drives up to approximately 44TB, and is expected to account for 50% of HAMR exabyte shipments by the end of 2026. Mozaic 5, based on a 5TB-per-disk HAMR platform, is expected to begin sampling for certification by the end of 2027, supporting drives of around 50TB, and will gradually contribute to sales in 2028.
Management stated that HAMR's share of nearline exabyte shipments has reached approximately 40%, with a target of increasing this to 50% by the end of 2026. This also explains why Seagate continues to invest in manufacturing tools. Gianluca Romano noted that the number of heads and disks inside each drive has increased by 15% to 20% over the past year, while the number of drive shipments has remained nearly unchanged. As products transition from 3TB per disk to 4TB and 5TB, the manufacturing process becomes more complex, requiring longer tool occupancy times.
New AI demand is still early, but direction is clear
Seagate management remains cautiously optimistic about AI demand, stressing that many new use cases are still in their early stages. Dave Mosley mentioned the relationship between KV Cache and hard drive storage during the call. He said that in agentic AI applications, systems need to retain a large amount of context data for each user. As the number of users increases and interactions become more complex, this context data expands. Enterprises do not want to recalculate this data each time, creating new storage demand.
He also touched on physical AI. Rather than the robots themselves, Mosley focused on the data issues behind them: sensor-generated data is sent back to on-premise clouds or larger-scale clouds, and large amounts of unstructured video data could become a significant source of demand for hard drive storage. However, management also emphasized that even without considering physical AI, enterprise application trends alone are already favorable for Seagate.
Citigroup raises target price, maintains buy rating
In a research report dated July 29, Citigroup maintained its Buy rating on Seagate and raised its target price from $124 to $130. Citigroup stated that Seagate continues to benefit from strong demand, margin expansion driven by the HAMR ramp-up, and pricing power supported by supply-demand fundamentals.
Additionally, the company's capital allocation is improving. Management said that as of the end of fiscal 2026, Seagate's net debt leverage ratio had fallen to 0.4x. In the September quarter, the company will repay another $1.2 billion in debt, including $1.0 billion in high-yield senior notes already repaid in July, with the remaining convertible bonds maturing in September. The company also stated that it is executing a higher level of stock buybacks this quarter and will continue to do so over the next several quarters.
For investors, the significance of Seagate's latest earnings report goes beyond just one company's outperformance. It provides clearer short-term validation for the three key themes of storage demand, pricing, and margins. Amid the volatility in the AI trade, this report has temporarily stabilized market confidence in the storage cycle.
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