Can STX's Business Overhaul & Product Pipeline Fuel its Upside in 2026?

To drive stronger profitability and cash generation in fiscal 2026, Seagate Technology Holdings plc (STX) has implemented structural changes to its business model and continues to advance its product roadmap. As part of its strategy, the company has restructured its revenue streams across its two core markets - the Data Center vertical, centered on nearline products and systems serving cloud, enterprise and VIA customers, and the Edge IoT sector, which encompasses consumer and client-oriented markets, along with network-attached storage.

The changes were made effective from the first-quarter fiscal 2026, wherein data center revenue represented 80% of Seagate’s $2.1 billion total, rising 13% sequentially and 34% year over year. Data center strength helped offset softer sequential results in the Edge IoT segment, which contributed 20% of revenue at $515 million. Seagate anticipates a seasonal improvement in this segment in the December quarter, supported by VIA, Edge and consumer products. Nearline capacity remains primarily committed under build-to-order contracts through 2026, and long-term agreements with major cloud customers extend visibility through 2027, reinforcing confidence in sustained demand.

Demand from global cloud customers remains strong, backed by a solid recovery in enterprise OEM markets, and Seagate expects cloud growth to continue outpacing enterprise demand. As AI moves from training to large-scale inferencing, requirements such as checkpointing and managing massive datasets are driving rapid growth in high-capacity storage needs. To meet this demand amid tight supply, STX is accelerating the qualification of its high-capacity Mozaic portfolio. Most major cloud providers have now qualified their HAMR-based Mozaic drives, and production is ramping accordingly.

Management expects continued demand trends moving forward, driven by global cloud data centers, and anticipates higher revenue and margin expansion as customers adopt next-generation storage solutions. For the fiscal second quarter, Seagate forecasts revenue of $2.7 billion (+/-$100 million), implying about 16% year-over-year growth at the midpoint.

How STX’s Main Competitors Stack Up in Storage

Western Digital Corporation (WDC) is benefiting from a booming AI and cloud computing demand environment, wherein the cloud end market derives a lion’s share of its revenue, riding on solid demand for higher-capacity nearline products. Like STX, it is progressing well on HAMR development and remains on track to begin qualification with one hyperscale customer in the first half of 2026, expanding to up to three by year-end. With a focus on reliability, quality and scalable performance, this effort supports a planned volume production ramp in the first half of 2027. It has separated its HDD and Flash businesses into two independent, publicly traded companies, each with a specific focus on its respective market. With a deep understanding of memory and storage technology, the new SanDisk is poised to meet market demands.

Pure Storage, Inc. (PSTG) continues to reshape the future of enterprise storage with innovations tailored for modern data workloads—particularly AI, containerization and high-performance computing. In addition to hardware and architectural innovation, it advanced its cloud-native storage strategy. PSTG introduced Portworx for KubeVirt in the fiscal second quarter, a virtualization-centric storage solution for Kubernetes. This solution addresses the rising demand for enterprises to manage VM workloads in cloud-native environments. Healthy demand for FlashBlade solutions, including FlashBlade//E is a tailwind. During the fiscal second quarter, it expanded its Flash portfolio with a suite of next-gen storage systems, designed for performance, scale and versatility. By broadening its product portfolio, it is strengthening its foothold across industries ranging from financial services and healthcare to AI-driven startups and large-scale cloud providers.

STX Price Performance, Valuation and Estimates

In the past year, shares have gained 159.4% compared with the Zacks Computer Integrated Systems industry’s growth of 58.8%.

In terms of forward price/earnings, STX’s shares are trading at 22.76X, lower than the industry’s 23.07X.

The Zacks Consensus Estimate for STX’s earnings for fiscal 2026 has been revised up 6.37% to $11.02 over the past 60 days.

Currently, Seagate sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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