Seagate Surges 81.8% YTD: Should STX Stock Be in Your Portfolio?

Core Insights - Seagate Technology Holdings plc (STX) has seen its shares increase by 81.8% year-to-date, significantly outperforming the Zacks Computer-Integrated Systems industry's growth of 6.4% and the S&P 500's growth of 9.6% [1][8] Company Performance - Seagate has outperformed competitors in the storage sector, such as Western Digital Corporation (WDC), Pure Storage (PSTG), and NetApp, Inc. (NTAP), with WDC gaining 27.3% while PSTG and NTAP have declined by 5% and 6.1% respectively [2] - The company reported a 40% year-over-year increase in revenues from mass capacity devices, reaching $2 billion, driven by strong nearline cloud demand [5][8] - Nearline drives constituted 91% of total mass capacity exabytes shipped in the last quarter [5][8] Market Trends - The demand for mass capacity storage is increasing, aligning with cloud investment cycles and the expansion of AI-ready data center infrastructure [9][10] - Cloud service providers (CSPs) are focusing on AI applications and expanding their cloud infrastructure, which is expected to drive further demand for HDDs [10] - Seagate anticipates that enterprise edge storage will follow cloud trends, with AI investments driving long-term demand [11] Technological Advancements - Seagate is ramping up its HAMR technology to meet increasing demand, with Mozaic drives being the only products in the industry offering 3 terabytes per disk [12] - The company is progressing towards a 4+ terabyte per disk platform, with expectations for a 44TB capacity by 2026 and 5TB per disk technology aimed for early 2028 [13][14] Financial Metrics - Seagate's gross margin reached a record 37.9%, an improvement of approximately 700 basis points year-over-year [15] - The company expects fiscal first-quarter revenues to be around $2.5 billion, representing a roughly 15% year-over-year growth at the midpoint [11] Estimate Revisions - Earnings estimates for fiscal 2026 have increased by 2.3% to $10.12, while estimates for fiscal 2027 have risen by 4.9% to $12.61 [19] Valuation Metrics - From a valuation perspective, STX is trading at a price/earnings ratio of 14.77, which is lower than the industry average of 20.61 but above its historical mean of 11.84 [20] Strategic Outlook - Seagate's structural business model changes and robust product pipeline position the company for stronger profitability and cash generation in fiscal 2026 [21]