Seagate revenue guidance jumps 20% on AI-driven HAMR demand

Seagate Technology raised its annual revenue growth forecast to at least 20 percent, signaling its HAMR hard drive technology gives it a decisive cost advantage in the AI-driven data center market where competitor Western Digital has yet to field a comparable product. The outlook sent shares up more than 17 percent in pre-market trading.

"We believe Seagate is entering a new era of structural growth as AI applications amplify data creation and support sustained storage demand," CEO Dave Mosley said in the earnings release. "Our areal density-driven product strategy enables us to deliver higher-capacity, energy- and capital-efficient storage at scale."

The storage company reported fiscal third-quarter revenue of $3.1 billion and a non-GAAP EPS of $4.10, beating consensus estimates of $2.94 billion and $3.26, respectively. For its fourth quarter, Seagate projected revenue of $3.45 billion with EPS expected between $4.80 and $5.20 per share, pointing to sustained momentum.

The results, which pushed Seagate shares to an all-time high above $680, reinforce a structural recovery for the hard drive industry. With build-to-order contracts substantially locked in through 2027, Seagate is positioned to capture outsized profits before Western Digital can mass-produce its own HAMR drives, a milestone not expected until at least 2028.

HAMR's Economic Engine

The key to Seagate's performance is the superior economics of its Heat-Assisted Magnetic Recording (HAMR) technology. The company achieved a record non-GAAP gross margin of 47.0 percent, a dramatic expansion from 36.2 percent in the same quarter last year. The incremental gross margin was 71.6 percent, meaning nearly 72 cents of every new dollar of revenue converted directly into gross profit.

This margin expansion is not primarily from price hikes, but from cost efficiencies. Per-EB (exabyte) costs fell 14.4 percent year-over-year, while per-EB revenue rose a modest 5.4 percent. HAMR allows Seagate to increase disk capacity by over 30 percent—shipping 40TB-plus drives—with minimal change in material costs, directly boosting per-unit profitability. Management expressed confidence this trend will continue as the technology roadmap extends to 50TB drives with "Mozaic 5" by the end of calendar 2027.

A Widening Competitive Moat

The data center segment, which now accounts for 80 percent of Seagate's business, saw revenue grow 55 percent year-over-year to approximately $2.5 billion. This growth in revenue significantly outpaced the 47 percent increase in exabytes shipped, underscoring the financial benefit of the richer product mix.

This performance contrasts with main rival Western Digital (WDC), whose data center revenue grew at a slower 25 percent in its most recent quarter. WDC currently relies on ePMR technology, which tops out at 28TB, putting it at a significant density and cost-per-terabyte disadvantage. While WDC has guided to a strong gross margin of 47-48 percent for its next quarter, showing broad industry strength, Seagate's technological lead with HAMR provides a competitive window of at least 12 to 18 months.

The strong performance has allowed Seagate to rapidly repair its balance sheet. The company generated nearly $1 billion in free cash flow, paid down $641 million in debt, and saw its net leverage fall to just 0.7x. Fitch recently upgraded the company's credit rating to investment grade. With its balance sheet goals nearly met, management signaled a pivot to returning capital to shareholders through stock buybacks.

This article is for informational purposes only and does not constitute investment advice.