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Seagate Tech (STX +8%) piles onto its impressive rally today after delivering sizeable bottom-line upside on healthy revenue growth in Q2 (Dec). Shares of the hard disk drive (HDD) manufacturer have been on a tear lately, appreciating by nearly +30% in 2025 as investors continue to bet on proliferating AI-related demand. As a leading HDD maker, STX has capitalized on a growing appetite for cheap and fast storage. HDDs continue to offer an attractive combination of the two, maintaining certain advantages over flash storage -- rival Western Digital's (WDC) forte. Speaking of WDC, the company provided a better-than-feared outlook last week, adding kindling to STX's rally leading into Q2 results.

• STX delivered EPS of $2.03, a nearly 16x improvement yr/yr as it was lapping the beginning of a long-awaited recovery from a prolonged bearish cycle. Non-GAAP operating margins surged by 14.9 points yr/yr to 23.1%, further reflecting the outsized challenges STX was facing just one year ago.
• Revenue jumped by 51.6% yr/yr to $2.33 bln, a nice uptick from the +49.1% increase last quarter. Cloud remained the primary revenue driver, benefiting from accelerating nearline product demand, aligning with a nearly 50% rise in cloud capital investments made by customers last year. Partially pushing against this tailwind were supply constraints STX touched on during a conference last month. While STX confirmed that the issue has been resolved, it is expected to weigh on Q3 (Mar) financials.
• STX anticipates cloud customers to continue expanding their investments in 2025 to support the growing demand for traditional services and Gen AI applications. CEO William Mosley expressed outsized enthusiasm for Gen AI and how it will underpin tremendous growth at STX, noting that since a substantial volume of data will be stored on HDDs, Gen AI will drive significant mass capacity storage growth. Meanwhile, in edge computing, STX expects enterprises to store more data at the edge as AI computing gravitates toward the source of data generation.
• To capitalize on this trend, STX has its new Mozaic HAMR (heat-assisted magnetic recording) platform, ramping volume to address demand at the exabyte (used to store massive data) scale. STX has achieved certain qualifications that set the foundation for the next phase of its Mozaic volume ramp during the back half of 2025.

One of the notable weaknesses of STX's Q2 report was its Q3 guidance. STX projected EPS of $1.50-1.90 and revs of $1.95-2.25. The midpoint of its earnings forecast met estimates, while the midpoint of its revenue forecast missed consensus slightly. The problem stems from a seasonal decline in the VIA (edge computing market) and legacy (PCs, laptops, etc.) markets alongside an approximately $200 mln revenue headwind from aforementioned supply constraints limiting STX's ability to respond to in-quarter volume opportunities.

Nevertheless, since it appears to be a minor speed bump, investors are brushing it aside, focused on constant demand for STX's latest generation nearline products, such as Mozaic, and the unwavering demand for AI, all of which can keep STX's tremendous upward momentum active.