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Seagate Technology Holdings (STX): A Hidden Gem in Tech Stocks to Buy Now

Victor HaleFriday, May 2, 2025 7:53 pm ET

15min read

In a tech landscape dominated by headlines about AI, semiconductors, and cloud giants, seagate technology holdings (NASDAQ: STX) has quietly emerged as a compelling value play. The storage solutions leader is delivering robust financial results, innovative product cycles, and a sustainable dividend—all while trading at a valuation that appears undervalued relative to its growth trajectory. Here’s why investors should consider adding this overlooked tech stock to their portfolios.

Financial Turnaround and Strong Earnings Momentum

Seagate’s recent performance underscores a dramatic turnaround. In Q1 2025 (ended September 2024), revenue surged 49% year-over-year to $2.17 billion, while net income jumped from a loss of $184 million to a profit of $305 million. Earnings per share (EPS) hit $1.45, outperforming analyst estimates by nearly 10%. This marks a pivotal shift from the company’s struggles in prior years, driven by aggressive cost-cutting and a strategic focus on high-margin products like its 28-terabyte nearline drives and HAMR (Heat-Assisted Magnetic Recording) technology.

The company’s Q2 2025 guidance reinforces optimism, with revenue expected to reach $2.3 billion and non-GAAP EPS projected at $1.85. Even more encouraging is the long-term outlook: analysts forecast 11% annual revenue growth over the next three years, outpacing the broader tech sector’s 7.6% average. This growth is being fueled by rising demand for mass data storage solutions in cloud computing, AI, and enterprise IT—a trend that’s here to stay.

Valuation: Bargain Pricing Amid Strong Fundamentals

At current levels, Seagate’s valuation appears compelling. With a P/E ratio of 14.81, it trades at a discount to peers like Western Digital (WDC) and Dell Technologies (DELL). Its price-to-free-cash-flow ratio of 14.3 further suggests the stock is undervalued, especially given its ability to generate consistent cash flows.

Recent price action also supports the bullish case. Following its Q3 2025 earnings beat, shares jumped 11.59% to $89.34, with analysts at Morgan Stanley raising their price target to $89, citing strong demand for high-capacity HDDs. While some analysts, like Barclays, have trimmed targets due to near-term macroeconomic risks, they’ve maintained a neutral stance, acknowledging Seagate’s debt-reduction efforts and disciplined capital allocation.

Catalysts Driving Future Growth

Technological Leadership in Storage Innovation
Seagate’s HAMR technology enables storage densities that outperform traditional drives, making it a critical partner for cloud providers like Amazon Web Services and Microsoft Azure. The company’s Mozaic 3+ platform, launched as part of its “Decarbonizing Data” initiative, combines high capacity with sustainability, appealing to ESG-focused investors.
Sustainable Dividend Policy
With a dividend yield of 1.0% (after the recent hike to $0.72 per share), Seagate balances shareholder returns with reinvestment. While the yield may seem modest, the dividend’s 4% annual growth rate signals confidence in cash flow stability.
Cloud and Enterprise Demand Surge
The global cloud storage market is projected to grow 15.9% over the next 12 months, per industry reports. Seagate’s Days Inventory Outstanding (96), while above its five-year average, reflects strategic stockpiling to meet rising demand—a positive sign of forward-looking inventory management.

Risks and Challenges

No investment is without risks. Seagate faces headwinds like global trade tensions, which could disrupt supply chains, and competition from flash storage (SSD) technologies. Additionally, its debt levels, though reduced by $536 million, remain a consideration. However, its improving EBIT margin (14.3%) and gross margin (31.8%)—the highest in over a decade—suggest the company is well-positioned to navigate these challenges.

Conclusion: A Buy for the Long Term

Seagate Technology Holdings offers a rare combination of value, growth catalysts, and sustainability in a tech sector often dominated by high-flying but volatile names. With a P/E of 14.81, strong cash flows, and a product pipeline aligned with the $100+ billion cloud storage market, STX appears primed to outperform.

Key data points supporting this thesis:
- Revenue growth of 11% annually over the next three years.
- $1.2 billion in cash reserves and a $27 million free cash flow in Q1 2025.
- Analyst upgrades and price targets, including Morgan Stanley’s raise to $89, reflecting confidence in its cloud-driven model.

While risks like tariff impacts or inventory mismatches exist, the stock’s valuation and fundamentals suggest a favorable risk-reward profile. For investors seeking a steady, innovation-driven tech stock with a foothold in the data economy, Seagate is a hidden gem worth buying now.

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