STX Earnings Recap: Analysts remain upbeat despite cautious guidance

Seagate Technology (STX) delivered a strong fiscal Q2 2025 performance, exceeding both earnings and revenue expectations.

The company reported adjusted EPS of $2.03, beating the consensus estimate of $1.87 and significantly higher than the prior year’s $0.12 per share.

Revenue reached $2.33 billion, a 50% year-over-year increase, surpassing the $2.31 billion forecast.

Key Metrics and Segment Drivers

Gross margin expanded to 35.5%, up 220 basis points sequentially, driven by robust demand for high-capacity nearline drives and efficiency improvements.

Operating margin rose to 23.1%, well above the 8.2% recorded in the prior year, highlighting structural profitability gains.

Nearline cloud revenue nearly doubled year-over-year, reflecting strong demand from hyperscale customers and AI-driven storage requirements.

Seagate shipped 151 exabytes in Q2, up from 138 exabytes in Q1, with mass capacity revenue contributing $1.9 billion, up 9% sequentially.

Sales of legacy products increased 2% sequentially, supported by seasonal demand, while other business segments, including SSDs and refurbished drives, contributed $156 million.

Guidance and Challenges

For Q3, Seagate guided revenue between $2.1 billion and $2.25 billion, placing the midpoint slightly below the consensus estimate of $2.19 billion.

The company expects adjusted EPS in the range of $1.50 to $1.90, aligning with market expectations at the midpoint.

Supply constraints are anticipated to impact Q3 revenues by approximately $200 million, but management emphasized these issues have been resolved.

Seagate’s gross margin is expected to improve sequentially in Q3, supported by continued demand for nearline drives and advancing HAMR technology.

Market Dynamics and Strategic Initiatives

Global PC market softness remains a headwind, with sluggish shipments impacting demand for personal storage devices.

The company’s aerial density-focused roadmap positions it to capture growth from cloud storage and AI applications, which are driving unprecedented data generation.

Seagate is ramping its HAMR-based Mosaic platform, with 36TB drives sampling to customers and mass production set for the latter half of fiscal 2025.

Management highlighted the role of HDDs in storing large AI datasets, with hard disk drives providing a cost-effective and scalable solution compared to NAND storage.

Analyst Reactions

Morgan Stanley named Seagate its "top pick" in IT hardware, citing a favorable HDD cycle and potential margin expansion driven by AI data needs.

Mizuho raised its price target to $115 from $107, highlighting HAMR technology’s potential to boost long-term margins.

Northland increased its price target to $160, expecting further gross margin expansion and robust demand for high-capacity drives.

Benchmark and RBLT analysts also upgraded Seagate, praising the company’s improved visibility in build-to-order models and increasing demand for high-density drives.

Conclusion

Seagate’s fiscal Q2 performance underscores its leadership in mass capacity storage, with strong nearline revenue growth and significant profitability improvements.

While supply constraints may impact short-term results, the company is well-positioned to benefit from increasing cloud and AI storage requirements.

With robust technology advancements, disciplined cost management, and growing demand from hyperscale customers, Seagate is poised for continued growth in fiscal 2025 and beyond.