Storage Giant Seagate Technology’s Better-Than-Expected Earnings Drive Stock Up 18% After Hours, Where Will the Stock Price Go Next?

The core takeaway from Seagate's earnings report lies in its data center business.

The company disclosed that total revenue for the third quarter was $3.112 billion, with data center revenue reaching $2.5 billion, up 55% year-over-year and accounting for approximately 80% of total revenue; HDD shipments reached 199EB, up 39% year-over-year, with about 90% of shipments going directly to data center customers.

At the same time, the company provided high business visibility, with nearline HDD supply essentially locked in until 2027 and build-to-order contracts extending through fiscal year 2027, indicating that this growth phase is not a short-cycle inventory restocking but rather the result of sustained long-term demand from major customers.

Historically, the market viewed the HDD industry as a typical cyclical manufacturing sector, where the core logic was that rising prices would stimulate supply, which would then lead to a decline in profits. However, AI training, inference, enterprise knowledge bases, video generation, and cloud archiving are now continuously generating data that does not vanish once model training is complete; instead, it continues to accumulate through subsequent retrieval, calling, and retraining.

Furthermore, Seagate hinted during its earnings call that the company is no longer just a cyclical stock, but has secured more stable demand within the AI infrastructure chain. Seagate management repeatedly emphasized that AI is not only consuming GPUs but also continuously amplifying data generation and storage needs. CEO Dave Mosley stated bluntly during the call that AI is scaling data creation in existing applications like video, and that large cloud vendors embedding AI into their platforms will drive more content generation, requiring more data to be preserved.

More importantly, this demand is already reflected in orders and capacity. Both Seagate and Western Digital have previously stated that their capacity through 2026 is essentially fully allocated and sold out, meaning supply is not expanding in sync with demand. The market is witnessing an environment characterized by strengthening demand, constrained capacity, and simultaneous improvements in both pricing and profit margins.

For investors, this confirms that Seagate's current rally is not driven by one-time sentiment. As long as data center demand remains strong, Seagate's profit elasticity will be more durable than that of traditional cyclical stocks.

The data center business serves as the mainstay of Seagate's performance, while Mozaic 4+ and HAMR are driving the company's profitability enhancements.

Seagate disclosed in its earnings report that Mozaic drives have been shipped to approximately 75% of leading global cloud customers, with qualification for the remaining two customers expected to be completed in the June quarter; meanwhile, Mozaic 4+ has completed qualification and entered mass production with two of the largest cloud service providers, supporting capacities of up to 44TB.

For cloud providers and AI infrastructure customers, procurement decisions are truly driven by storage cost per unit of data, power performance, density, and the total cost of ownership (TCO) after large-scale deployment.

The value of Mozaic 4+ and HAMR lies in their ability to link higher capacity with a more sustainable cost structure, enabling Seagate to further solidify its pricing power amid tight industry supply. Consequently, the market has begun to view Seagate as a key beneficiary in the AI storage chain, rather than just a traditional hardware manufacturer reliant on shipment volume fluctuations.

TradingKey believes that Mozaic 4+ and HAMR provide Seagate with a long-term valuation rerating following product structure upgrades, rather than a one-time revenue increment.

Barclays upgraded Seagate's rating to Overweight, focusing on the ramp-up pace of 40TB HAMR products.

BofA raised its price target for Seagate to $700, citing limited HDD capacity expansion and strong industry supply discipline as core reasons, while incremental demand driven by AI continues to be unleashed.

One standout feature of Seagate's latest earnings report is the evident improvement in the quality of its profits.

Data shows that Seagate's non-GAAP gross margin reached 47.0% in the third quarter, with an operating margin of 37.5%, free cash flow approaching $953 million, and net leverage dropping to 0.7x.

In the past, profit improvements in the storage industry relied more on short-term price hikes and inventory restoration; however, this time they stem from an increased share of high-capacity nearline hard drives driving up average selling prices, coupled with limited industry capacity expansion supporting price stability and sustained demand from AI-driven data growth. This makes Seagate's profit margins more sustainable rather than just providing one-off elasticity.

Simultaneously, the improvement in cash flow further reinforces this shift. Operating cash flow for the quarter was approximately $1.1 billion, with free cash flow nearing one-third of total revenue, while the company's net leverage also fell to 0.7x. This signifies that earnings are not just reflected in book profits but are also translating into real cash inflows, leading to a reduction in the company's risk profile.

From a valuation perspective, this combination of high margins, strong cash flow, and low leverage is shifting Seagate from a traditional cyclical stock toward an asset with infrastructure-like characteristics.

Based on Seagate Technology's monthly chart, the share price has risen to just below the Fibonacci 0.618 extension level of $587.18. Judging by Tuesday's after-hours performance, it is highly probable that the stock will break above $600 at today's U.S. market open, potentially testing the Fibonacci 1.0 extension resistance level at $738.31.

Once Seagate Technology successfully breaks through $738.31 in the future, upside potential toward the $1,000 round-number psychological level will be unlocked.

Resistance levels: 738.31, 982.80

Support levels: 553.20, 540.50

This content was translated using AI and reviewed for clarity. It is for informational purposes only.