Seagate Outpaces Industry in 6 Months: How to Play the Stock
Seagate Technology Holdings plc’s STX shares have climbed 118.3% in the past six months, outperforming the Zacks Computer-Integrated Systems industry’s growth of 48.4%. The stock has also outpaced the Zacks Computer & Technology sector and the S&P 500’s growth of 23.3% and 16.7%, respectively.Image Source: Zacks Investment ResearchBetter-than-expected results, aggressive capital returns, and advancements in hard-disk technology drive the surge. In November, Seagate rolled out its new Exos 4U100 and 4U74 JBOD systems, advancing enterprise storage ahead of the SC25 conference. Designed for data-heavy workloads in both data centers and edge environments, these top-tier systems offer as much as 3.2 petabytes of capacity in one of the densest single-enclosure designs available.The company has successfully surpassed its industry peers like Micron Technology MU and Advanced Micro Devices AMD, which have risen 97.4% and 63.4%, respectively, over the six months. At the same time, its cut-throat rival in the HDD space, Western Digital Corporation WDC, has outrun STX, growing 193.8%.Image Source: Zacks Investment ResearchWestern Digital is a diversified storage company offering a broad portfolio of HDD and NAND-based SSD solutions used across desktop PCs, servers, NAS devices, gaming consoles, DVRs and other consumer electronics. Micron manufactures and markets high-performance memory and storage technologies, including DRAM, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. AMD delivers industry-leading total cost of ownership, efficiency, and advanced AI capabilities, enabling high performance, reliability, and scalability across data centers, the edge, and end-user environments.Secular Drivers Behind STX’s Strong FundamentalsSeagate’s latest quarterly results showed healthy revenues and strong EPS, and management has guided toward continued demand for high-capacity drives in data centers. It is benefiting from strong data center demand driven by global cloud customers and accelerating AI workloads. Data center revenues now represent the majority of sales, supported by higher nearline drive capacities and long-term production visibility into 2026. On the technology front, Seagate continues to scale its HAMR roadmap, with broad customer qualification progress and rising shipments, positioning the company to support next-generation cloud and edge storage needs with higher-capacity, more efficient solutions.AI is transforming hard drive demand by increasing the economic value of data and storage. This is leading to higher demand for STX’s high-capacity nearline drives as customers expand their investments in AI. The rapid growth in AI inferencing further boosts data creation, as large volumes of multimodal data are stored, analyzed, and reintegrated into ongoing training cycles. The effect is already evident as global cloud service providers deploy large-scale inferencing applications across text, audio, and video workloads.Improving aerial density remains a core strength for Seagate and a main driver of industry advancement, providing a durable TCO benefit over other storage options. Demand for high-capacity HAMR drives is increasing as customers seek efficient solutions for AI-driven data growth. Its HAMR-based Mozaic 3+ platform allows for denser storage and is gaining strong traction, with five global CSPs qualified on 36TB offerings. Production is progressing smoothly, with HAMR drives expected to reach a 50% exabyte share by the second half of 2026. Seagate is also developing Mozaic 4+ drives with capacities up to 44TB, aiming for volume ramp-up in early 2026, while moving toward 5TB-per-disk technology for launch around 2028.STX Executes Financial Framework With Cash Flow UpsideSeagate’s business transformation and strong product pipeline position it well for long-term growth. Since the first quarter of fiscal 2026, the company has streamlined its operations around two core markets - Data Center, serving cloud, enterprise, and VIA customers with nearline drives and systems, and Edge IoT, which includes consumer and client segments, such as network-attached storage. Demand from global cloud customers continues to accelerate, alongside a recovery in enterprise OEM markets, with cloud growth outpacing enterprise demand.As AI shifts from training to large-scale inferencing, requirements for checkpointing and massive data retention are driving rapid growth in high-capacity storage demand. Amid tight supply, Seagate is working closely with data center customers to speed qualification of its high-capacity HAMR-based Mozaic drives, with most major cloud providers already qualified and production ramping to meet strong demand. Robust data center growth offset sequential softness in Edge IoT, with seasonal improvement expected in the December quarter. Long-term customer agreements provide strong demand visibility into 2027.Moreover, its business model overhaul and product pipeline support continued margin expansion and cash flow growth in fiscal 2026. Strong cash flow and an explicit capital-return program can increase shareholder value. Management has leaned on buybacks and dividends to promote a disciplined capital allocation method. During the fiscal first quarter, it returned capital to shareholders through dividends of $153 million and the repurchase of 153,000 shares for $29 million at an average price of $187 per share. It is dedicated to returning a minimum of 75% of its free cash flow to shareholders over the long term and anticipates stronger free cash flow generation in the December quarter. Image Source: Zacks Investment ResearchGoing ahead, management projects higher revenue and margin expansion as customers adopt its next-generation storage solutions. For the fiscal second quarter, it expects revenues to be $2.7 billion (+/- $100 million). At the midpoint, this indicates a 16% year-over-year improvement. At the midpoint of revenue guidance, non-GAAP operating margin is projected to increase to approximately 30%. For fiscal 2026, STX expects capital spending to remain within its targeted 4-6% of revenue range while maintaining strict capital discipline.However, Seagate is plagued by potential headwinds, including heightened forex volatility, intense competitive pressure across the data storage market, and ongoing macroeconomic and supply-chain uncertainty. Its high debt load further elevates financial risk, restricting flexibility for dividends, share repurchases, and strategic acquisitions. These challenges could significantly limit growth and undermine long-term performance. Estimate Revision Trend of STXSTX is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2026 have increased 7% to $11.26 over the past 60 days, while the same for fiscal 2027 has gone up 8.6% to $14.88.Image Source: Zacks Investment ResearchKey Valuation Metric of STXGoing by the price/earnings ratio, the company’s shares currently trade at 23.34 forward earnings compared with 22.12 for the industry.Image Source: Zacks Investment ResearchEnd NoteSeagate is supported by powerful multi-year growth drivers, including rapid AI-led data expansion, increasing cloud storage requirements, and rising demand across edge and video applications. Its next-generation HAMR-based hard drives are fueling market share gains, reinforced by a solid outlook and a differentiated technology roadmap, positioning the company for both near-term momentum and long-term value creation.Strong cloud demand and accelerating HAMR adoption enabled Seagate to begin fiscal 2026 with solid results, delivering robust performance and record margin expansion. Boasting a Zacks Rank #1 (Strong Buy) at present, STX seems to be a good fit for your portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.Zacks Naming Top 10 Stocks for 2026Want to be tipped off early to our 10 top picks for the entirety of 2026? History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2025, the Zacks Top 10 Stocks gained +2,530.8%, more than QUADRUPLING the S&P 500’s +570.3%.Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2026. Don’t miss your chance to get in on these stocks when they’re released on January 5. Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report Western Digital Corporation (WDC): Free Stock Analysis Report Seagate Technology Holdings PLC (STX): Free Stock Analysis Report Micron Technology, Inc. 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