Seagate Blows Past Earnings as HAMR Margins Surge and Guidance Jumps

Seagate Technology delivered a decisive earnings beat in fiscal Q2 2026, reinforcing its status as one of the market’s highest-conviction plays on the data-center storage cycle. The company posted results that exceeded expectations across revenue, earnings, and margins, while management’s guidance and commentary signaled that momentum is not only intact but accelerating into calendar 2026. Shares responded accordingly, rallying through the $400 level and pressing toward fresh highs following the conference call as investors leaned further into the structural storage trade.

For the December quarter, Seagate Technology reported adjusted EPS of $3.11, well ahead of consensus expectations near $2.80–$2.85. Revenue came in at $2.83 billion, also topping estimates by a wide margin and marking a 22% year-over-year increase. The upside was broad-based, but particularly driven by continued strength in data-center demand and the accelerating ramp of Seagate’s HAMR-based Mozaic drives. Importantly, this was not a one-off quarter: management emphasized that calendar 2025 was a “transformational year,” with revenue up more than 25% and gross margins expanding by roughly 740 basis points.

Gross margin was a centerpiece of the report and the primary driver of investor enthusiasm. Non-GAAP gross margin expanded to 42.2%, up more than 200 basis points sequentially and marking a new company record. Operating margin followed suit, rising nearly 300 basis points sequentially to 31.9%. Management attributed the margin expansion to disciplined pricing, favorable product mix, and the growing contribution from higher-capacity nearline drives as HAMR shipments continue to scale. Notably, gross profit growth materially outpaced revenue growth, underscoring the operating leverage embedded in Seagate’s model as it transitions customers to denser, higher-value products.

The data-center business once again dominated results. Data-center revenue reached approximately $2.2 billion, up 28% year over year, accounting for roughly 87% of total shipment volume. Exabyte shipments rose 26% year over year to 190 exabytes, while unit volumes remained relatively flat—an important signal that growth is being driven by capacity density rather than brute-force production increases. Average nearline drive capacity climbed more than 20% year over year, with cloud customers averaging closer to the mid-20 terabyte range. Management reiterated that nearline capacity is fully allocated through calendar 2026, with long-term agreements extending visibility into 2027 and early discussions already underway for 2028 demand.

HAMR and the Mozaic platform remain the long-term linchpin of the story. During the quarter, Seagate shipped more than 1.5 million HAMR units, with Mozaic 3 products now qualified across all major U.S. cloud service providers and on track to complete remaining global qualifications in the first half of calendar 2026. Management also confirmed that qualifications for second-generation Mozaic 4 products—featuring roughly 4 terabytes per disk and enabling 40-terabyte drives—are progressing on plan, with an initial volume ramp expected to begin later this quarter. The transition from Mozaic 3 to Mozaic 4 is critical, as it drives further reductions in cost per terabyte and supports continued margin expansion over the next several years.

Guidance reinforced confidence in both demand and profitability. For fiscal Q3 2026, Seagate guided revenue to $2.9 billion plus or minus $100 million, implying roughly 34% year-over-year growth at the midpoint. Adjusted EPS is expected to be $3.40 plus or minus $0.20, well ahead of prior consensus. Management also suggested that operating margins could approach the mid-30% range, reflecting continued pricing discipline and mix benefits. On cash flow, Seagate generated $607 million of free cash flow in the quarter, retired $500 million of debt, and reiterated expectations for further free cash flow expansion in coming quarters.

Looking ahead, investors will remain focused on three key areas. First is the pace and profitability of the Mozaic 4 ramp, which will determine how quickly Seagate can extend its margin leadership and cost advantage. Second is pricing durability, particularly as long-term agreements roll and customers migrate to higher-capacity products; management suggested that flat-to-slightly-up pricing is achievable in the current supply-constrained environment. Third is competitive positioning within the broader storage ecosystem, where peers such as Western Digital, Micron, and SanDisk could see sympathy moves if Seagate’s strength signals sustained industry-wide demand rather than company-specific execution.

With shares now above $400 and pressing toward new highs, expectations are clearly elevated. Still, Seagate’s combination of record margins, deep demand visibility, and a multi-year HAMR roadmap gives investors reason to believe the storage cycle has further to run. The next phase—executing the transition from Mozaic 3 to Mozaic 4 while sustaining pricing discipline—will determine whether this rally consolidates or extends into the next leg higher.