Core Viewpoint - Seagate Technology Holdings plc (STX) is currently undervalued compared to its peers and the broader market, presenting a potential investment opportunity [1][2]. Valuation Comparison - STX is trading at a forward 12-month price-to-sales ratio of 2.05X, significantly lower than the Zacks Computer & Technology sector's 6.53X and the Zacks Computer – Integrated Systems industry's 3.27X [1]. - Compared to peers like IBM (3.63X), AMD (5.54X), and Agilysys (7.14X), STX's valuation appears attractive [2]. Stock Performance - Over the past year, STX stock has increased by 14.3%, while the industry has declined by 2.8% and the S&P 500 has grown by 22.2% [3]. - The stock closed at $99.21, which is 14% lower than its 52-week high of $115.32 [3]. Growth Drivers - Strong demand for mass capacity, particularly nearline products, has led to a 79% year-over-year revenue increase in mass capacity [6]. - Nearline revenues nearly doubled in the fiscal second quarter, reflecting a 60% growth forecast for 2024, driven by cloud service providers and enterprise clients [7]. - Cloud capital expenditures are expected to grow by approximately 50% in 2024, supporting demand for nearline products [8]. - The adoption of AI applications is anticipated to increase HDD demand as CSPs develop cloud infrastructure [9]. - Long-term growth is supported by STX's HAMR technology, which is expected to meet rising exabyte demand and enhance profitability [10][11]. Financial Outlook - STX projects third-quarter fiscal 2025 revenues of $2.1 billion, with non-GAAP earnings expected to be $1.7 per share [14]. - Non-GAAP operating expenses are anticipated to be $290 million, with operating margins expected to grow in the low-20s percentage range [15]. Challenges - Seasonal declines in the VIA and legacy markets, along with supply constraints, are expected to impact revenue by approximately $200 million [18]. - STX has a relatively high debt level, with long-term debt at $5.676 billion against cash and cash equivalents of $1.239 billion [19]. - The company faces competition from HDD and SSD manufacturers, as well as from companies offering storage subsystems [20]. Analyst Sentiment - Analysts have revised earnings estimates downward, with a 13.2% decrease for the current quarter and a 4.2% decrease for the next [21]. - The current year earnings estimate has been revised down by 2.8% to $7.60 per share [21]. Investment Strategy - Despite robust performance and growth drivers, concerns over supply chain issues, high debt, and competition suggest a cautious approach [22]. - Holding STX stock is recommended as a prudent strategy to benefit from its industry position while managing external risks [23].

Group 1 - Chip stocks are experiencing significant challenges in 2025 due to the emergence of China's DeepSeek AI models, which may not require advanced Nvidia chips for developing highly functional large language models (LLMs) [1] - Nvidia has been a dominant player in the chip market, but the recent developments indicate a potential shift in the competitive landscape [1] - Gary Alexander, with extensive experience in technology and investment, has been actively contributing insights on the evolving themes in the industry since 2017 [1]

Group 1: Company Performance - Seagate reported Q2 earnings with net sales of $2.3 billion, a 50% year-over-year increase, driven by a rebound in storage demand [1] - The company's gross margin improved from 23.3% in Q2 2024 to 34.9% in Q2 2025, while operating margin expanded from 8.0% to 21.0% [1] - Earnings per share (EPS) surged to $1.55 from $(0.09) over the same period [1] Group 2: Stock Performance - Seagate stock has risen 30% since early January 2024, outperforming the S&P 500's 28% increase during the same period [2] - The stock has experienced significant volatility over the past four years, with returns of 88% in 2021, -51% in 2022, 69% in 2023, and 4% in 2024 [5] Group 3: Future Outlook - Seagate is focusing on Heat Assisted Magnetic Recording (HAMR) technology, shipping 30 TB hard disks, which positions the company for growth amid increasing demand for high-capacity drives [3] - Revenue is expected to grow 40% year-over-year to $9.2 billion in 2025, with a valuation estimate of $115 per share, reflecting a 6% upside from current levels [4] - Analysts have an average price estimate of $123 for Seagate, indicating nearly 13% upside potential [4]

Revenue and Gross Margin - Revenue for the December 2024 quarter was $2.3 billion, with a gross margin of 34.9% and operating cash flow of $221 million[122] - Revenue increased by $157 million compared to the September 2024 quarter, driven by higher demand for nearline products and favorable pricing actions[126] - Gross margin for the December 2024 quarter increased by 2 percentage points compared to the September 2024 quarter, primarily due to favorable product mix and cost efficiencies[129] - Gross margin for the December 2024 quarter increased by 12 percentage points compared to the December 2023 quarter, driven by favorable product mix, pricing actions, and the absence of $36 million in factory underutilization charges[130] - Revenue for the six months ended December 27, 2024, increased by $1.5 billion compared to the same period in 2023, primarily due to higher demand for nearline products and favorable pricing actions[127] Product Shipments and Demand - The company shipped 151 exabytes of HDD storage capacity in the December 2024 quarter, with mass capacity drives accounting for 140 exabytes[126] - The company anticipates temporary supply constraints in the March quarter due to resolved production challenges, but expects continued growth in HDD storage demand driven by Generative AI applications[123] Sales Incentives and Warranty Costs - Sales incentive programs accounted for 14% of gross revenue in the December 2024 quarter, compared to 13% in the September 2024 quarter and 18% in the December 2023 quarter[128] - Warranty costs related to new shipments were 0.7% of revenue in the December 2024 quarter, consistent with the September 2024 quarter and down from 0.9% in the December 2023 quarter[132] Expenses - Product development expenses increased by $3 million in the December 2024 quarter compared to the September 2024 quarter, primarily due to higher compensation and employee benefits[133] - Product development expenses increased by $23 million in the December 2024 quarter compared to the December 2023 quarter, primarily due to a $24 million increase in compensation and other employee benefits[134] - Marketing and administrative expenses increased by $31 million in the December 2024 quarter compared to the December 2023 quarter, primarily due to a $26 million increase in compensation and other employee benefits[137] - Other expense, net increased by $51 million in the December 2024 quarter compared to the September 2024 quarter, primarily due to a $50 million increase in net loss from certain investments[140] Cash and Financial Obligations - Cash and cash equivalents decreased by $120 million from June 28, 2024 to December 27, 2024, primarily due to $295 million in dividends paid to shareholders and $139 million in capital expenditures[146] - The company has $1.5 billion available for borrowing under its senior unsecured revolving credit facility as of December 27, 2024[148] - The company has unconditional purchase obligations of approximately $900 million as of December 27, 2024, with $810 million expected to be paid within one year[156] - Future principal payment obligation on long-term debt is $5.7 billion as of December 27, 2024, with $479 million due within one year[158] - The company accrued a settlement penalty of $300 million related to BIS' allegations of violations of the U.S. EAR, with $60 million expected to be paid within one year[159] - The company declared a quarterly cash dividend of $0.72 per share, payable on April 2, 2025[160] - The company expects capital expenditures to be higher in fiscal year 2025 compared to fiscal year 2024[162] Investments and Financial Instruments - The company has $531 million in floating rate money market funds, time deposits, and certificates of deposit with an average interest rate of 4.53%[169] - The company holds $5,729 million in fixed rate debt obligations with an average interest rate of 5.64%, maturing in various years up to 2029 and beyond[169] - The company has foreign currency forward exchange contracts with a total notional amount of $280 million, including $167 million in Singapore Dollars, $66 million in Thai Baht, $31 million in Chinese Renminbi, and $16 million in British Pound Sterling[173] - The company uses Total Return Swaps (TRS) to manage equity market risks associated with its non-qualified deferred compensation plan liabilities, paying a floating rate based on SOFR plus an interest rate spread[175]

Analyst Background - Michael Del Monte is a buy-side equity analyst with over 5 years of industry experience and a decade in professional services across various sectors including O&G, OFS, Midstream, Industrials, Information Technology, EPC Services, and consumer discretionary [1] - The analyst employs a macro-value-oriented approach to investment analysis, leveraging cross-industry insights to make investment recommendations [1] Analyst's Position - The analyst holds a beneficial long position in the shares of STX, ORCL, DELL, and HPE through stock ownership, options, or other derivatives [2] - The article reflects the analyst's personal opinions and is not influenced by compensation or business relationships with the mentioned companies [2]

Company Performance - Seagate Technology shares surged close to 7% on Wednesday and are up more than 21% over the past year [4] - The company's fiscal second-quarter results topped estimates, leading to a jump in its stock price [1] Analyst Opinions - Morgan Stanley analysts called Seagate's stock a "top pick," citing AI-driven demand for data storage [2][4] - Morgan Stanley raised its price target to $134 from $129 and maintained an "overweight" rating [2] - Mizuho analysts boosted their price target to $115 from $107 [3] - Citi increased its price target to $125 from $120 [3] - The consensus target compiled by Visible Alpha is $117, an 8% premium over Wednesday's closing price of $108.18 [3] Industry Trends - Accelerating data growth is pushing up demand for storage both in the cloud and on-premises, benefiting Seagate [2] - The company is ramping up production of its high-capacity hard drives based on HAMR (heat-assisted magnetic recording) technology, which analysts see as a tailwind going into the back half of the year [3][4]

Earnings and Financial Performance - Seagate Technology reported Q2 FY25 revenue of $2 33 billion, beating consensus estimates [1] - The company expects Q3 adjusted EPS of $1 70 at the midpoint, slightly above analyst estimates of ~$1 60 [2] - Q3 revenue guidance is $2 10 billion at the midpoint, in line with analyst estimates [2] - March quarter revenues declined by $200 million due to previously discussed supply chain issues [2] - The analyst raised CY25 EPS estimate to $8 85 from $8 60, above consensus of $8 06 [4] - CY26 EPS estimate remains unchanged at $11 00, above street view of $9 82 [4] Market and Industry Outlook - Management highlighted limited supply additions, build-to-order contracts, and long lead times of up to 52 weeks as factors supporting sustained demand [3] - Strong AI-driven EB growth is contributing to the positive outlook [3] - Some investors express concerns about a cyclical peak after six quarters of Nearline revenue recovery [3] Technology and Product Development - Management remains highly optimistic about the HAMR (Heat-Assisted Magnetic Recording) ramp in H2 FY25 [3] - HAMR technology is expected to drive incremental share gains, higher drive density, and improved gross margins [3] Stock Performance - STX shares increased by 7 97% to $109 32 at the last check on Wednesday [4]

Earnings Performance - Non-GAAP earnings of $2.03 per share, beating consensus by 7.98% and surpassing $2 for the first time in 12 quarters [1] - Non-GAAP revenues of $2.325 billion, up 49.5% YoY and 7.2% sequentially, beating consensus by 0.64% [2] - Non-GAAP income from operations totaled $538 million, up from $127 million a year ago [13] Revenue Drivers - Mass capacity revenues surged 79% YoY to $1.894 billion, driven by stronger nearline cloud demand [3] - Nearline revenues almost doubled YoY, growing 60% in 2024 due to strong demand from cloud service providers and enterprise customers [4] - Total HDD revenues rose 57% YoY to $2.169 billion, representing 93.3% of total revenues [11] Technological Advancements - Significant progress in HAMR technology, with Mozaic products sampling capacities up to 36 terabytes [5] - Average capacity per drive increased 41% YoY and 9% sequentially to 11.6 TB [7] Margin and Cost Management - Non-GAAP gross margin increased to 35.5% from 23.6% YoY, driven by price adjustments and cost discipline [12] - Non-GAAP operating margin increased to 23.1% from 8.2% YoY [13] Exabyte Shipments - Total HDD storage shipments of 150.8 exabytes, up 59% YoY and 10% sequentially [7] - Mass-capacity storage shipments of 140 exabytes, up 68% YoY and 9% sequentially [8] - Legacy market shipments of 10.8 exabytes, down 10% YoY but up 13% sequentially [10] Financial Position - Cash and cash equivalents of $1.238 million as of Dec 27, 2024, compared to $1.239 million as of Sept 27, 2024 [14] - Long-term debt of $5.679 billion as of Dec 27, 2024, compared to $5.676 billion as of Sept 27, 2024 [14] - Cash flow from operations of $221 million, up from $169 million in the previous quarter [15] Guidance and Future Outlook - Q3 fiscal 2025 revenue guidance of $2.1 billion (+/- $150 million), with strong cloud demand expected to offset seasonal declines [16] - Non-GAAP earnings expected to be $1.7 per share (+/- 20 cents) for Q3 fiscal 2025 [17] - Fiscal 2025 capex expected to be at or below the low end of the long-term target range of 4-6% of revenues [18] Market Performance - Shares rose 3.7% to close at $101.25 on Jan 21, 2025, and gained 6% in pre-market trading on Jan 22 [6] - Shares have gained 13.5% over the past year, outperforming the sub-industry's growth of 2.8% [6]

Financial Data and Key Metrics - The company has posted its earnings press release and detailed supplemental information for the December quarter results on the Investors section of its website [3] - The call will refer to both GAAP and non-GAAP measures, with non-GAAP figures reconciled to GAAP figures in the earnings press release and Form 8-K [4] - Certain non-GAAP outlook measures have not been reconciled due to material items that are out of the company's control or cannot be reasonably predicted [4] Business Line Data and Key Metrics - No specific data or metrics related to individual business lines were provided in the content Market Data and Key Metrics - No specific data or metrics related to individual markets were provided in the content Company Strategy and Industry Competition - No specific information on company strategy or industry competition was provided in the content Management Commentary on Operating Environment and Future Outlook - The call contains forward-looking statements that reflect management's current views and assumptions [5] Other Important Information - The event is being recorded, and participants will be in listen-only mode during the presentation [2] - After the presentation, there will be an opportunity for participants to ask questions [2] Q&A Session - No specific questions or answers were provided in the content

Earnings Performance - Seagate reported quarterly earnings of $2 03 per share, beating the Zacks Consensus Estimate of $1 88 per share, representing a 7 98% earnings surprise [1] - The company's earnings per share (EPS) for the same quarter last year was $0 12, showing significant year-over-year growth [1] - In the previous quarter, Seagate posted earnings of $1 58 per share, surpassing the expected $1 48 per share, with a 6 76% surprise [1] - Over the last four quarters, Seagate has consistently surpassed consensus EPS estimates [2] Revenue Performance - Seagate reported revenues of $2 33 billion for the quarter ended December 2024, exceeding the Zacks Consensus Estimate by 0 64% [2] - This represents a significant increase from the year-ago revenues of $1 56 billion [2] - The company has topped consensus revenue estimates three times over the last four quarters [2] Stock Performance - Seagate shares have gained approximately 13 2% since the beginning of the year, outperforming the S&P 500's gain of 2% [3] - The stock's immediate price movement will largely depend on management's commentary during the earnings call [3] Earnings Outlook - The current consensus EPS estimate for the coming quarter is $2 05 on $2 37 billion in revenues [7] - For the current fiscal year, the consensus EPS estimate is $7 75 on $9 35 billion in revenues [7] - The estimate revisions trend for Seagate is mixed, translating into a Zacks Rank 3 (Hold), indicating the shares are expected to perform in line with the market [6] Industry Context - Seagate belongs to the Zacks Computer - Integrated Systems industry, which is currently in the bottom 40% of the 250 plus Zacks industries [8] - The top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1 [8] Peer Comparison - IBM, another company in the same industry, is expected to report quarterly earnings of $3 74 per share, representing a year-over-year change of -3 4% [9] - IBM's revenues are expected to be $17 6 billion, up 1 3% from the year-ago quarter [9]