Executive Summary / Key Takeaways

• Seagate Technology Holdings plc is strategically positioned for sustained profitable growth, driven by its innovative Heat-Assisted Magnetic Recording (HAMR) technology and the surging demand for mass capacity storage from AI-driven applications.
• The company delivered a robust fiscal first quarter 2026, achieving record non-GAAP gross and operating margins of 40.1% and 29%, respectively, alongside strong revenue growth and non-GAAP EPS exceeding guidance.
• Seagate's HAMR-based Mozaic platform is gaining significant traction, with five global cloud service providers (CSPs) qualified on Mozaic 3+ terabyte per disk products and initial qualification underway for the 4+ terabyte per disk platform.
• A disciplined build-to-order strategy provides clear demand visibility through calendar 2026 and into 2027, underpinning expectations for continued revenue and margin expansion, lower net leverage, and enhanced shareholder returns, including a recently increased quarterly dividend.
• Key investment considerations include the successful execution of the HAMR roadmap, maintaining supply discipline in a high-demand environment, and leveraging the explosive growth of unstructured data, particularly from AI-generated video content.

The Data Storage Imperative: Seagate's Strategic Evolution

Seagate Technology Holdings plc, founded in 1978, stands as a pivotal provider of data storage technology and infrastructure solutions. Its core business revolves around hard disk drives (HDDs), complemented by solid-state drives (SSDs) and scalable edge-to-cloud mass data platforms. HDDs remain the foundational medium for mass data storage, valued for their performance, reliability, high capacities, and cost-effectiveness. The industry landscape is currently undergoing a transformative shift, with Artificial Intelligence (AI) applications emerging as a dominant force driving unprecedented demand for data storage.

Seagate's strategic response to this evolving market is centered on profitable growth, operational discipline, and continuous technological innovation. The company has refined its market reporting, effective fiscal year 2026, to focus on two key end markets: Data Center and Edge Internet of Things (Edge IoT). This reorientation better reflects the current demand drivers, particularly the profound impact of AI. Seagate's overarching strategy emphasizes leveraging its technological prowess to deliver efficient exabyte output, ensuring a healthy supply-demand balance, and optimizing financial returns.

In the competitive arena, Seagate faces formidable rivals such as Western Digital Corporation (WDC), Samsung Electronics (through its memory and storage division), and Micron Technology, Inc. (MU). While WDC offers a broad portfolio of HDDs and SSDs, and Samsung and Micron excel in high-performance NAND flash and SSDs, Seagate distinguishes itself through its specialized focus on high-capacity HDDs and its pioneering HAMR technology. Seagate's competitive advantage lies in providing cost-effective, reliable mass storage solutions, particularly for data-intensive environments. While competitors might lead in the speed and low-latency aspects of flash memory, Seagate's emphasis on areal density and total cost of ownership (TCO) for bulk storage positions it strongly against the capital-intensive nature of alternative technologies.

Technological Edge: Seagate's Mozaic Platform

At the heart of Seagate's competitive differentiation is its Heat-Assisted Magnetic Recording (HAMR) technology, embodied in the Mozaic platform. This core technology is designed to significantly increase HDD capacities by enabling higher areal density, storing more data bits per platter. The tangible benefits of HAMR are substantial and quantifiable for customers. It offers a superior and sustainable TCO advantage for hard drives compared to alternative technologies, extending well into the future. For instance, customers deploying 40-terabyte drives versus 30-terabyte drives realize immense TCO benefits over a six-to-seven-year operational lifespan.

Seagate's R&D initiatives are aggressively pushing the boundaries of areal density. The company is currently focused on the qualification and volume ramp of its 4-plus terabyte per disk platform, which will enable capacities of up to 44 terabytes per drive. This is a critical step towards achieving 50% exabyte crossover on nearline HAMR drives in the second half of calendar year 2026. Looking further ahead, Seagate aims to introduce 5 terabyte per disk technology into the market in early calendar year 2028. Concurrently, the company expects to demonstrate 10 terabyte per disk technology in the lab around the same timeframe, leveraging advancements in manufacturing expertise and silicon photonics.

For investors, this technological roadmap is paramount. It forms the bedrock of Seagate's competitive moat, ensuring its ability to meet the world's insatiable demand for exabytes through innovation rather than simply adding unit capacity. This strategy translates directly into enhanced financial performance through higher average selling prices (ASPs) for more valuable, higher-capacity drives, lower costs per terabyte, and ultimately, expanded gross margins. The transition to HAMR is explicitly accretive to margins, reinforcing Seagate's market positioning as the leader in mass capacity storage solutions for the AI era.

The AI Catalyst: Fueling Exabyte Demand

The burgeoning AI landscape is fundamentally reshaping the demand for hard drive storage, elevating the economic value of data. AI inferencing, in particular, is poised for rapid scaling, consuming and generating vast quantities of data that require robust, cost-effective storage for retention, monitoring, validation, and continuous training loops. This trend is evident in the explosive growth of unstructured data, with video content being a major contributor. AI-generated videos are expected to further fuel this demand; for example, Google (GOOGL) reported over 275 million videos generated on its Veo platform within five months, with a single one-minute AI video potentially being 20,000 times larger than a 1,000-word text file. This highlights the immense storage implications of generative AI.

Global cloud service providers (CSPs) are at the forefront of this demand surge, deploying large-scale inferencing applications that rely on multimodal inputs. One major hyperscaler reported a 50-fold increase in monthly token consumption, a proxy for inferencing adoption, within a single year. Seagate's high-capacity nearline production is largely committed under build-to-order contracts through calendar 2026, with visibility extending into calendar 2027 through longer-term agreements. This predictability underscores the persistent favorable demand conditions and allows Seagate to align its manufacturing and product transitions effectively. The company has also partnered with a global CSP to develop sovereign cloud solutions for sensitive data, such as telemetry from autonomous vehicles, where local processing and storage are critical for compliance and security. Hard drives are the ideal solution for these use cases, offering superior throughput, durability, and cost-efficient long-term data retention.

Financial Momentum and Operational Discipline

Seagate has demonstrated remarkable financial momentum, underscored by its fiscal first quarter 2026 results. The company reported revenue of $2.63 billion, a 21% year-over-year increase. Non-GAAP gross margin reached a new company record of 40.1%, representing a 220 basis point sequential expansion and an incremental margin of nearly 70%. Non-GAAP operating margin climbed to 29%, a level not seen since fiscal 2012. This strong performance translated into non-GAAP EPS of $2.61, exceeding the high end of guidance.

Operational details reveal the drivers behind these figures. Seagate shipped 182 exabytes in the September 2025 quarter, a 32% year-over-year increase, with the vast majority directed to data center customers. Cloud exabyte demand has increased for nine consecutive quarters, with nearly 80% of nearline volume now on drives at or above 24 terabytes. The average nearline drive capacity has increased by 26% over the past year, a primary contributor to exabyte volume growth. Seagate's consistent pricing strategy, involving slight increases for like-for-like products during contract renegotiations, combined with the favorable mix shift to higher-capacity HAMR drives, has been instrumental in expanding profitability. While customers transitioning to HAMR may see a slightly lower price per terabyte, the overall profitability benefits from the like-for-like price increase and reduced cost per terabyte.

Liquidity and capital allocation reflect a disciplined approach. As of October 3, 2025, cash and cash equivalents stood at $1.11 billion, bolstered by $532 million in operating cash flow. The company's gross debt was approximately $5 billion, with a net leverage ratio of 1.5x based on adjusted EBITDA of $831 million, leading to an S&P credit rating upgrade in October 2025.

Seagate is committed to returning at least 75% of free cash flow to shareholders over time. This commitment was reinforced by a 3% increase in the quarterly dividend to $0.74 per share and the resumption of opportunistic share repurchases, with $29 million deployed in Q1 2026. Capital expenditures for fiscal year 2026 are projected to be higher than fiscal year 2025, within the target range of 4% to 6% of revenue, primarily supporting technology transitions rather than adding new unit capacity.

Strategic Outlook and Guidance

Seagate's outlook for the December quarter remains robust, driven by strong demand from global cloud data centers. The company forecasts December quarter revenue to be in the range of $2.7 billion, plus or minus $100 million, representing a 16% year-over-year improvement at the midpoint. Non-GAAP operating expenses are expected to remain relatively flat at approximately $290 million. This revenue growth, coupled with disciplined cost management, is projected to expand non-GAAP operating margin to around 30%. Non-GAAP EPS is guided to be $2.75, plus or minus $0.20, based on an estimated tax rate of 16% (reflecting the Pillar Two global minimum tax) and a diluted share count of approximately 227 million shares.

Management's confidence is rooted in the accelerating adoption of HAMR technology. Five global CSPs are now qualified on Mozaic 3+ terabyte per disk products, with the remaining three expected to be qualified by mid-calendar 2026. Over 1 million Mozaic drives were shipped in the September quarter, performing well in live production environments. Qualification for the Mozaic 4+ terabyte per disk platform has also commenced with a second major CSP, with initial volume ramp anticipated in the first half of calendar 2026. This aggressive roadmap is crucial as the company aims for 50% exabyte crossover on nearline HAMR drives in the second half of calendar 2026. The company's strategy is to increase exabyte supply through these higher areal density products, rather than adding unit capacity, thereby maintaining a healthy supply-demand balance and maximizing profitability.

Risks and Competitive Dynamics

Despite a compelling investment thesis, Seagate faces several pertinent risks. The dynamic macroeconomic environment, characterized by rapid shifts in trade policies and geopolitical tensions, could impact business results. While the company expects minimal direct tariff-related impacts, secondary effects on customer demand are continuously monitored. Intense competition from both HDD and SSD manufacturers, including Western Digital, Samsung, and Micron, remains a constant challenge. The increasing capacity and decreasing cost of flash memory could continue to displace smaller form-factor HDDs in certain Edge IoT and client applications. However, Seagate maintains that HDDs offer a six-times lower cost per terabyte and a significantly smaller embodied carbon footprint compared to NAND, making them the preferred solution for mass data storage in the cloud.

Operational challenges, such as potential shortages or delays in critical components and reliance on single-source suppliers, could affect production and development. The complexity of new HAMR products means defects may only be detectable after deployment, leading to increased costs. Furthermore, the company's high debt levels necessitate substantial cash flow for servicing, increasing vulnerability to economic downturns and potentially limiting financial flexibility. Legal and regulatory risks, including compliance with export control laws and the BIS settlement agreement, also pose potential financial and reputational threats. The volatility of Seagate's ordinary shares is another factor for investors to consider, as quarterly results can fluctuate significantly.

Conclusion

Seagate Technology Holdings plc is undergoing a profound transformation, positioning itself as a critical enabler and beneficiary of the AI-driven data explosion. The company's unwavering commitment to its HAMR-based Mozaic technology roadmap is not merely an incremental improvement but a fundamental shift that promises superior TCO for customers and expanded profitability for shareholders. With record margins, robust cash flow generation, and a disciplined capital allocation strategy, Seagate is demonstrating strong operational execution in a high-demand environment.

The long-term investment thesis for Seagate is compelling, rooted in its technological leadership in areal density, strategic focus on high-growth data center and edge IoT markets, and a proactive approach to supply-demand dynamics. While competitive pressures and macroeconomic uncertainties persist, Seagate's ability to deliver increasingly efficient exabytes through HAMR, coupled with its predictable build-to-order model, provides a clear path for sustained profitable growth. Investors should watch the continued ramp of HAMR qualifications and shipments, as these will be key indicators of Seagate's ability to capitalize on the immense opportunities presented by the AI era and solidify its competitive advantage in the evolving data storage landscape.