Seagate (STX) Down 4.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Seagate (STX). Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Seagate due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Seagate's Q2 Earnings Beat Estimates

Seagate reported second-quarter fiscal 2026 non-GAAP earnings of $3.11 per share, beating the Zacks Consensus Estimate of $2.83 and exceeding the high end of management’s guidance of $2.75 per share (+/- 20 cents). The company reported earnings per share (EPS) of $2.03 in the prior-year quarter. The bottom line also expanded 19% quarter over quarter on the back of its strong execution of its strategic objectives and effective use of its technology roadmap to support growing demand.

Non-GAAP revenues of $2.83 billion exceeded the Zacks Consensus Estimate by 2.7%. Revenues also surpassed the guidance midpoint, increasing 22% year over year. Seagate is operating in a very strong demand environment, especially in data center markets. The December quarter showed steady growth in high-capacity nearline drive demand across global cloud customers and continued improvement at the enterprise edge — a momentum the company expects to sustain given its robust build-to-order pipeline.

Management highlighted that modern data centers increasingly need solutions that balance performance with cost efficiency, a trend that strongly favors Seagate’s roadmap. The company’s areal-density-driven strategy aligns well with the long-term growth of AI-generated data, suggesting sustained demand beyond short-term cycles.

In the quarter, average nearline drive capacity increased 22% year over year to nearly 23 TB per drive, with even higher averages for cloud customers, highlighting strong adoption of higher-capacity products. Meanwhile, revenue per terabyte remained stable, reflecting disciplined pricing and positioning Seagate to benefit from strong secular demand and tight supply.

Revenues by End Market

Beginning first-quarter fiscal 2026, Seagate reports revenues across two key markets — Data Center, encompassing nearline products and systems sold to cloud, enterprise and VIA customers, and Edge IoT, covering consumer and client-focused segments, including network-attached storage.

The data center segment accounted for 79% of total revenue, at $2.2 billion, representing a 5% sequential increase and 28% year-over-year growth. The uptick is driven by continued strong demand from global cloud customers and sequential improvement across enterprise and OEM markets.

The edge IoT segment accounted for the remaining 21% of revenue, at $601 million, up 2% year over year and 17% sequentially, aided by expected seasonal strength in consumer products within the VIA client market. It expects the broader VIA market to expand over time, with the largest growth driven by VIA nearline products in the data center end market.

Exabyte Shipments in Detail

In the reported quarter, Seagate shipped 190 exabytes of HDD storage, up 26% year over year and 5% sequentially. The data center market accounted for 87% of shipments, driven by sustained demand from global cloud customers and sequential growth in enterprise OEM markets.

The company shipped 165 exabytes to data center customers, up 4% sequentially and 31% year over year.

Margin Details

Non-GAAP gross margin reached a record 42.2%, rising by about 210 basis points (bps) quarter over quarter and roughly 670 bps year over year, driven by stronger adoption of Seagate's high-capacity nearline products and continued pricing initiatives, which together led to a modest sequential increase in revenue per terabyte—a trend expected to carry into the March quarter.

Non-GAAP operating expenses were $290 million, flat sequentially and up 1% year over year, aligning with its expectations.

Non-GAAP income from operations totaled $901 million, up from $538 million a year ago, driven by solid sales and effective financial leverage. Non-GAAP operating margin increased 880 bps year over year to 32%.

Non-GAAP Adjusted EBITDA totaled $962 million.

Balance Sheet and Cash Flow

As of Jan. 2, 2026, cash and cash equivalents were $1.05 billion compared with $1.1 billion as of Oct. 3, 2025.

As of Jan. 2, 2026, long-term debt (including the current portion) was $4.5 billion compared with $4.9 billion as of Oct. 3, 2025.

Cash flow from operations was $723 million compared with $532 million in the previous quarter. Free cash flow amounted to $607 million, up 42% sequentially, being the highest level in eight years.

In the December quarter, Seagate returned $154 million to shareholders via dividends and retired about $500 million of exchangeable senior notes due 2028, reducing potential dilution and preserving cash flexibility for future share repurchases.

Strong Fiscal Q3 Business Outlook

Demand remains strong, especially from global cloud customers, and is expected to more than offset the typical March-quarter seasonality in the edge IoT markets. For the fiscal third quarter, it expects revenues of $2.9 billion (+/- $100 million). At the midpoint, this indicates a 34% year-over-year improvement.

Non-GAAP earnings are expected to be $3.40 per share (+/- 20 cents). For the quarter, non-GAAP operating expenses are expected to be around $290 million.

At the midpoint of revenue guidance, non-GAAP operating margin is projected to increase to approximately 30%.

Seagate expects free cash flow to increase further in the March quarter, driven by strong demand, operational efficiency and disciplined capital spending, supporting sustainable long-term cash generation. The company will maintain capital discipline while continuing the transition and ramp-up of HAMR technology, with fiscal 2026 capital spending expected to remain within its target range of 4%–6% of revenue.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a upward trend in fresh estimates.

The consensus estimate has shifted 22.7% due to these changes.

VGM Scores

At this time, Seagate has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a score of F on the value side, putting it in the lowest quintile for value investors.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Seagate has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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