Seagate Technology (STX, Financial) has seen a significant turnaround in 2023 after facing challenges in 2022 and early 2023 due to an inventory surplus and weak demand for PCs and laptops. This year, STX benefited from increased demand from cloud customers and an improved supply-demand balance, resulting in revenue growth of over 49% in 1Q25, marking its highest growth in over five years.
Despite a 32% year-to-date increase in share value, STX faced high expectations ahead of its recent earnings release. Although STX previously exceeded expectations in 4Q24, its guidance for 2Q25 EPS and revenue met expectations but did not exceed them, leading to a sell-the-news reaction. The company's conservative outlook contrasts with its optimistic fiscal year expectations.
- STX is enthusiastic about its HAMR (heat-assisted magnetic recording) storage products, which allow HDDs to store more data at a lower cost per terabyte. These products are ideal for new datacenters utilizing AI technologies. STX anticipates HAMR shipments and revenue to increase by mid-CY25.
- The company foresees further margin expansion this fiscal year, driven by the growth of its high-capacity nearline drives and Mozaic-based HAMR products, along with favorable supply-demand dynamics. In Q1, non-GAAP gross margin rose to 33.3%, its highest in over a decade, up from 19.8% in the previous year.
- STX's mass capacity HDDs, particularly nearline storage HDDs used for bulk storage in data centers, are experiencing strong demand. This trend is expected to persist in FY25 as datacenter infrastructure expands to support AI, with cloud companies like Microsoft (MSFT, Financial), Google (GOOG, Financial), and Amazon Web Services (AMZN, Financial) investing heavily in storage.
In summary, while STX experienced a sell-the-news reaction due to its inline Q2 guidance, the overall outlook remains positive. The demand for data storage continues to outpace the world's storage capacity, supporting a bullish future for STX.
