STX Q2 Deep Dive: Cloud Demand Drives Growth, Guidance Reflects Supply Constraints

Data storage manufacturer Seagate (NASDAQ:STX) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 29.5% year on year to $2.44 billion. On the other hand, next quarter’s revenue guidance of $2.5 billion was less impressive, coming in 2.5% below analysts’ estimates. Its non-GAAP profit of $2.59 per share was 6% above analysts’ consensus estimates.

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StockStory’s Take

Seagate’s most recent quarter delivered growth above Wall Street’s expectations, but the market responded negatively, reflecting some caution. Management attributed the strong performance to ongoing demand from cloud providers and a successful ramp of its advanced nearline and HAMR-based hard drives. CEO Dave Mosley highlighted that "record gross margins" and robust exabyte shipments were underpinned by product transitions and discipline in aligning supply with demand. The company also emphasized operational improvements and increased adoption of high-capacity drives by major cloud customers as key contributors to the quarter’s results.

Looking ahead, Seagate’s guidance reflects supply constraints and a measured outlook on near-term growth, even as demand for high-capacity storage remains strong. Management indicated that further margin expansion will be driven by continued adoption of HAMR-based products and operational efficiencies, but cautioned that production dedicated to customer qualification and new global tax rules may weigh on results. CFO Gianluca Romano stated, “Our guidance is mainly based on what we think we are ready to supply during the quarter and that volume of exabytes, they will be fully sold.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to strong demand for mass capacity storage, successful product transitions, and ongoing operational discipline.

• Cloud demand momentum: Seagate saw sustained strength from global cloud providers, with nearline hard drives—used for storing large volumes of data in data centers—accounting for the majority of mass capacity shipments. This trend was reinforced by build-to-order contracts that offer visibility into future demand.
• HAMR technology ramp: The company continued to ramp its HAMR (Heat-Assisted Magnetic Recording) drives, which allow for higher storage capacity at a lower cost per terabyte. Three major cloud customers have now qualified the Mozaic HAMR platform, and further customer qualifications are progressing.
• Product mix and pricing discipline: Seagate benefited from a favorable product mix, with growing sales of high-capacity 24TB and 28TB drives and incremental pricing improvements on new contracts. Management noted that like-for-like pricing continues to inch upward with each new agreement.
• Operational efficiency and cost control: Gross margin expansion was supported by operational changes and continued cost control efforts—especially as newer, higher-margin products gained traction. Management reiterated its focus on maximizing free cash flow and reducing leverage.
• Supply chain and production alignment: The company’s build-to-order manufacturing model enabled it to better align production with customer demand, though some production capacity was allocated to product qualifications, temporarily limiting near-term shipment volumes.

Drivers of Future Performance

Seagate’s outlook is shaped by cautious supply planning, ongoing product transitions, and increased operational complexity as new technologies scale.

• HAMR adoption and qualification: Management expects continued growth in HAMR drive shipments as more cloud customers complete qualification, which should drive both revenue and margin gains. However, some production will remain dedicated to customer testing, limiting immediate output.
• Supply-constrained growth: Revenue guidance reflects what Seagate can supply rather than total market demand, with capacity expansion linked to successful product transitions rather than simply increasing unit output. This strategy is expected to support margin expansion as higher-capacity drives become a larger portion of sales.
• Tax and share count headwinds: The introduction of a global minimum tax and increased share count from convertible notes and equity compensation are expected to impact non-GAAP earnings per share. Management plans to resume share buybacks to help offset some of this dilution.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and breadth of HAMR drive adoption and customer qualifications, (2) Seagate’s ability to expand production while maintaining gross margin improvements, and (3) the impact of new global tax rules and share buybacks on earnings per share. The migration of enterprise and edge workloads to higher-capacity platforms and progress in product transitions will also be important indicators of sustained growth.

Seagate Technology currently trades at $151.02, down from $152.90 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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