Seagate’s Data Deluge: Cloud Demand Lifts Earnings, But Investors Hit Pause on the Rally

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Seagate Technology closed fiscal 2025 on a strong note, delivering results that underscored the strength of cloud-driven storage demand while highlighting the challenges of heightened expectations and a shifting macro backdrop. The company reported adjusted EPS of $2.59, ahead of estimates of $2.45, on revenue of $2.44 billion versus consensus of $2.43 billion. Gross margin expanded for the ninth consecutive quarter, reaching 37.4%, as demand for high-capacity drives and cost efficiencies powered profitability. Yet shares slipped nearly 10% post-earnings, as a “sell the news” reaction tested the lower end of the $140–155 consolidation range the stock has occupied in recent weeks after an explosive run from $63 in early April to nearly $150.

The quarter’s headline numbers demonstrated Seagate’s operating momentum. Revenue rose 30% year-over-year and 13% sequentially, with non-GAAP operating margin improving to 26.2%. Volume shipments totaled 163 exabytes, up from 144 exabytes in Q3, while nearline shipments reached 137 exabytes, a 14% sequential increase and a 52% jump from last year. Free cash flow nearly doubled sequentially to $425 million, supported by record gross margins and strong execution. CEO Dave Mosley called fiscal 2025 “one of the most profitable fiscal years in the company’s long-storied history,” pointing to steady progress in both technology transition and profitability.

Key drivers in the quarter centered on Seagate’s strength in cloud demand and advances in next-generation storage technology. Nearline cloud shipments were a standout, with exabytes shipped up more than 50% from the prior year, and visibility extending well into the second half of calendar 2026. Management emphasized that demand continues to outpace supply, with production capacity already largely committed through mid-2026. The ongoing ramp of heat-assisted magnetic recording (HAMR) drives—now shipping to three major customers—contributed to margin improvement, with CFO Gianluca Romano noting that HAMR drives lower cost per terabyte and support gross margin expansion.

Compared with expectations, Seagate beat comfortably on both the top and bottom line. Adjusted EPS of $2.59 exceeded Street estimates by $0.14, while revenue came in slightly above consensus. Gross margin of 37.9% on a non-GAAP basis was a full 170bps better sequentially, highlighting the favorable mix shift and pricing discipline. The results provided validation of the company’s strategy to prioritize capacity over units, funneling customers toward higher-capacity drives to meet exabyte demand without risking pricing pressure.

Looking ahead, Seagate guided for fiscal Q1 (September quarter) revenue of $2.5 billion, plus or minus $150 million, in line with expectations but with a midpoint slightly below consensus. Adjusted EPS is projected at $2.30, plus or minus $0.20, compared with estimates of $2.33. Romano indicated non-GAAP operating margins should expand into the mid-to-high 20s range, reinforcing management’s confidence in sustaining profitability improvements. CapEx is expected to remain in the 4–6% of revenue range, supporting ongoing technology ramps. Mosley reiterated the company’s long-term outlook for mid‑20s% compound annual growth in exabytes, driven by cloud and AI demand, noting that “our nearline exabyte production capacity is largely spoken for through the middle of next calendar year.”

On demand, Seagate cited strength from global hyperscale and enterprise cloud customers, with video analytics and AI at the edge adding incremental growth drivers. Mosley highlighted that while revenue is constrained by supply, demand fundamentals remain robust. The company addressed investor concerns around customer inventory, noting it sees no evidence of stockpiling and continues to undersell relative to demand. The transition to Mozaic4 HAMR platforms, offering 40TB capacity, is expected to further boost efficiency, with management targeting HAMR to represent 40% of nearline exabytes by the end of fiscal 2026 and more than 50% by mid-2027.

From a macro standpoint, Seagate acknowledged tariff uncertainty but said it expects minimal near-term impact, given HDD exemptions under existing frameworks like USMCA. Mosley emphasized that mitigation plans are in place if conditions change. Analysts pressed management on potential headwinds from tariffs and PC market softness, with Seagate noting that cloud and AI demand continue to more than offset weakness in consumer PCs. Indeed, IDC data showed global PC shipments rising 6.5% in the June quarter, though the company noted that visibility remains limited as buyers adjust to trade dynamics and the coming Windows 11 refresh.

Capital allocation remains a priority, with Seagate reducing gross debt to $5 billion ahead of schedule and announcing plans to resume share buybacks in the September quarter. The company repaid debt aggressively during fiscal 2025 while building cash balances to $2.2 billion. Management reiterated its commitment to enhancing shareholder returns, balancing growth investments with disciplined leverage.

Investor sentiment following the print was mixed. Analysts broadly praised the quarter’s execution, with

Ultimately, Seagate’s Q4 delivered on execution, with strong growth in cloud storage demand, record margins, and a confident outlook on technology transitions. Shares may be consolidating after their rapid ascent, but management’s roadmap—anchored in HAMR adoption, margin expansion, and robust free cash flow—suggests the story remains firmly on track heading into fiscal 2026.

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