Can Strong AI Demand Help Seagate Maintain Its Upbeat FY26 Guidance?

Core Insights - Seagate Technology Holdings plc (STX) is experiencing strong momentum in fiscal 2026, driven by increasing AI-driven storage demands, with significant year-over-year revenue growth and record non-GAAP gross margins reported for Q1 fiscal 2026 [1][9] - The company anticipates that large-capacity hard drives will be essential for managing the vast amounts of unstructured data generated by AI workloads as AI adoption accelerates globally [1] Demand Surge and Product Development - AI is significantly transforming the storage landscape, with inferencing models generating vast amounts of data, particularly from video-based applications, which can be up to 20,000 times larger than traditional text files [2] - Seagate's Heat-Assisted Magnetic Recording (HAMR)-based Mozaic platform is well-positioned to meet this demand, having shipped over 1 million Mozaic drives in the September quarter, with these drives being the only products in the industry offering 3 terabytes per disk [3][9] - The company has qualified five global cloud service providers (CSPs) for its Mozaic products, which can offer up to 36TB per drive, and is on track to qualify additional CSPs by mid-2026 [4] Financial Outlook - Management projects continued strong demand, particularly from global cloud data centers, with expected revenues of $2.7 billion for Q2 fiscal 2026, indicating a 16% year-over-year improvement at the midpoint [5] - Non-GAAP earnings are anticipated to be $2.75 per share, with an expected operating income of $185-$195 million, reflecting around 14% year-over-year growth at the midpoint [10] Competitive Landscape - Seagate faces competition from Western Digital Corporation (WDC) and Pure Storage, both of which are also capitalizing on the growing AI and cloud computing demand [6][7][8] - Western Digital reported a 23% increase in shipments, while Pure Storage is focusing on innovations for modern data workloads, expecting fiscal 2026 revenues to rise by 14% at the midpoint [7][8] Stock Performance and Valuation - Seagate's shares have surged 194.4% over the past year, outperforming the Zacks Computer Integrated Systems industry, which grew by 72.3% [11] - The forward price/earnings ratio for Seagate is 23.24X, slightly lower than the industry's 23.47X, with earnings estimates for fiscal 2026 revised up by 7.03% to $11.26 [13][14]