Data Center Momentum Accelerates Seagate's Revenue Growth

Seagate Technology Holdings plc’s (STX) rapidly expanding data center demand is becoming the primary engine behind its revenue acceleration. As cloud service providers and enterprise customers scale infrastructure to support AI-driven workloads and exploding data volumes, Seagate is seeing sustained momentum in high-capacity storage demand. The company’s first-quarter fiscal 2026 performance underscores this trend, with solid revenue growth and record profitability.

The data center end market accounts for the vast majority of Seagate’s business. The data center segment includes nearline drives and systems sold to cloud, enterprise and VIA customers. Management projects higher revenue and margin expansion as customers adopt its next-generation storage solutions. For the fiscal second quarter, it expects revenues of $2.7 billion (+/- $100 million). At the midpoint, this indicates a 16% year-over-year improvement. At the midpoint of revenue guidance, non-GAAP operating margin is projected to increase to approximately 30%.

Data center revenue accounted for 80% of total revenue in the first quarter, reaching $2.1 billion, up 13% sequentially and 34% year over year. Demand from global cloud customers remained strong, alongside a notable recovery in enterprise OEM demand. Management expects these trends to continue, with cloud growth anticipated to outpace enterprise demand.

The company shipped 159 exabytes to data center customers during the first quarter, up from 137 exabytes in the prior-year period. Over the past year, average nearline drive capacity has risen by 26%, making it a key driver of overall exabyte growth. Robust data center growth offset lower sequential sales in the Edge IoT segment. High-capacity nearline production remains mostly committed under build-to-order contracts through 2026. Long-term agreements with global data center customers give it strong visibility through 2027, supporting confidence that demand will remain robust.

Apart from these, Seagate is working closely with data center customers to support and speed up the qualification timeline for its high-capacity Mozaic products. Most major global cloud providers are qualified on Seagate’s HAMR-based Mozaic drives, and production is ramping up to meet strong demand. The Mozaic products are performing strongly in production, with Seagate on track to reach 50% exabyte crossover on nearline Heat-Assisted Magnetic Recording (HAMR) drives in the second half of 2026.

Taking a Look at Seagate’s Competitors

Western Digital Corporation’s (WDC) HDD business is emerging as a solid revenue growth driver, supported by a sustained shift toward higher-capacity drives and rising exabyte demand from large-scale customers. It shipped 204 exabytes, up 23%, backed by strength in ePMR products up to 26TB CMR and 32TB UltraSMR. The company aims to ensure scalability in HAMR qualification ahead of volume production in early 2027. Management anticipates ongoing revenue growth, supported by strong data center demand and better profitability driven by increased adoption of high-capacity drives. Western Digital projects non-GAAP revenues of $2.9 billion (+/- $100 million) in the second quarter of fiscal 2026, up 20% year over year.

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 (HPC). The company is gaining from growing adoption of flash storage, advantages of All-Flash Arrays (AFA) in data centers, an impressive product portfolio, a strong partner base and growth prospects in emerging data-driven markets. Pure Storage raised its fiscal 2026 revenue outlook to $3.63-$3.64 billion from $3.60-$3.63 billion, implying 14.5-14.9% year-over-year growth. For the fiscal fourth quarter, Pure Storage expects revenues in the $1.02-$1.04 billion band, indicating an increase of 17.1% at the midpoint from the year-ago level.

STX Price Performance, Valuation and Estimates

In the past year, shares have gained 248.3% compared with the Zacks Computer Integrated Systems industry’s growth of 97.6%.

In terms of forward price/earnings, STX’s shares are trading at 24.26X, higher than the industry’s 17.73X.

The Zacks Consensus Estimate for STX’s earnings for fiscal 2026 has been revised up 2.18% to $11.26 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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