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Seagate Tech (STX) is only modestly higher despite beating expectations in its Q1 (Sep) report last night and issuing another above-consensus quarterly guide. The EPS beat was smaller than in recent quarters, although growth continued to accelerate, with revenue up 61% yr/yr to $4.23 bln and adjusted EPS nearly tripling to $7.68. For Q2 (Dec), STX expects revenue of $4.7-4.9 bln and adjusted EPS of $9.00-9.40, representing sequential growth of approximately 13% and 20%, respectively, at the midpoints. STX also expects continued sequential revenue growth and gross margin expansion throughout FY27.

• Demand remains exceptionally strong, particularly among hyperscalers, which continue expanding storage capacity as AI applications generate and retain growing amounts of data. STX noted that the value of data increasingly extends beyond its original use, with AI inference and agentic applications adding to already robust demand for mass-capacity storage.
• STX shipped a record 198 exabytes of nearline capacity to data center customers, up 24% yr/yr but only modestly sequentially, while data center revenue surged 63% yr/yr to $3.4 bln. STX attributed the slower sequential shipment growth to planned product staging ahead of customer qualifications, with a meaningful increase expected in the December quarter as its next-generation Mozaic 4 drives ramp.
• Longer-term demand visibility continues improving, with the vast majority of nearline exabyte supply now allocated under agreements through calendar 2028 and some cloud customer agreements extending through 2030. STX has established configurations and pricing through calendar 2027, with plans to begin finalizing pricing and configurations for 2028 supply in the coming quarters.
• Non-GAAP gross margin remained a bright spot, expanding 510 bps sequentially to a record 57.8%, while operating margin increased 610 bps to 50.7%. Strong pricing and a richer mix of higher-capacity drives more than offset rising external component costs, with management expecting further quarterly margin expansion throughout FY27.

Briefing.com Analyst Insight

STX is only modestly higher despite another strong quarter, with investors potentially focusing on the limited sequential increase in exabyte shipments as pricing continues to account for much of the revenue growth. However, management attributed the slowdown to planned product transitions rather than weakening demand, with shipments expected to accelerate in the December quarter. Meanwhile, long-term customer commitments and continued pricing strength provide considerable visibility, while the ongoing transition to higher-capacity Mozaic drives should support further improvements in profitability. Overall, the report reinforces a strong operating environment, although investors may want to see volume growth accelerate alongside pricing in the coming quarters.