What’s Next For Seagate Stock?

Note: STX’s fiscal year concludes in June

Seagate (NASDAQ: STX) has achieved an impressive 60% year‑to‑date increase, significantly exceeding the S&P 500’s 4% rise. This upswing owes to structural improvements within the business, alongside robust market dynamics and focused execution in advanced technologies such as HAMR (Heat Assisted Magnetic Recording). The company is capitalizing on a resurgence in the data‑storage market, benefiting from elevated demand fueled by generative AI.

Reflecting back to FY 2022, STX’s value has more than doubled, supported by:

1. A 176% rise in its P/S multiple—climbing from 1.16x in FY 2022 to 2.30x in FY 2024, and currently around 3.20x.
2. A 44% drop in annual revenues (from $11.7 billion to $6.6 billion), indicative of a broad industry downturn.
3. A 5% decrease in outstanding shares, attributed to an approximate $2.2 billion allocated for buybacks since FY 2022.

We will explore these factors in greater detail. While STX stock has provided substantial returns, those in search of growth with reduced volatility compared to individual stocks might consider the High Quality portfolio, which has surpassed the S&P 500 with returns exceeding 91% since its inception. Separately, see – BigBear.ai: What’s Happening With BBAI Stock?

What’s Behind The Revenue Performance?

Seagate’s revenue plummeted dramatically from $11.66 billion in FY 2022 to $6.55 billion in FY 2024—a 44% decline—largely due to weak demand in consumer PCs and external HDDs, Covid-related disruptions in Asia, component shortages, and persistent inflationary pressures. However, in the first nine months of FY 2025, revenue skyrocketed 42% year-over-year to $6.7 billion, propelled by strong demand from data-center and cloud customers. The explosive growth in AI applications is increasingly driving the desire for high-capacity drives.

In spite of SSDs capturing market share due to speed and efficiency, their higher cost per terabyte continues to make HDDs indispensable for large-scale storage. Seagate has wisely focused on enterprise-grade, high-capacity HDDs while reducing its production of lower-capacity consumer drives and limiting SSD exposure. Instead of vertically integrating NAND, it procures from partners like Kioxia, allowing for a streamlined focus on cost-effective bulk storage solutions. This tactic has led to steady, sustainable growth in Seagate’s key markets.

What’s Contributing To The Higher Valuation For STX Stock?

Seagate stock has seen a substantial rise in valuation multiples, with its price-to-sales (P/S) ratio increasing from 1.2x in FY 2022 to 3.2x today. Currently trading at approximately $136, STX stock’s trailing P/S multiple of 3.2x exceeds its four-year average of 2.2x and is also notably higher than Western Digital’s (NASDAQ: WDC) historical average (1.15x). Several critical factors are propelling this continuous growth:

1. AI-Driven Storage Demand & HAMR Adoption: Increasing demand from AI, cloud, and data center clients is enhancing high-capacity nearline HDD sales. Initial volume shipments of HAMR-equipped Mozaic drives (3 TB/platter, with plans to reach up to 10 TB and ultimately 100 TB) are capturing market share amid supply limitations.
2. Strong Earnings Surprises & Positive Outlook: Q3 results showcased strong revenue, margins, and EPS, fostering optimism for fiscal 2025. Seagate disclosed third-quarter adjusted earnings of $1.90 per share (up from 33 cents in Q3 2024) and quarterly revenue of $2.16 billion (up 31% year-over-year).
3. Shareholder Returns: Seagate introduced a $5 billion share repurchase initiative, demonstrating confidence in enhancing EPS.
4. Margin Expansion: Seagate’s operating margin has grown to 20% in the initial three quarters of 2025, compared to only 3% during the same timeframe last year. With AI and HAMR boosting revenue per drive, investors are factoring in considerable operating leverage, warranting premium multiples.

Yet, There Are Risks

Despite the optimistic outlook, there are significant risks. In periods of market downturn, STX has consistently lagged behind the S&P 500—declining 58.2% during the inflation-induced selloff in 2022 (from $116.02 on Jan 4 to $48.49 on Nov 3, as opposed to a 25.4% S&P decline), but it fully recovered by May 27, 2025, and surged to $136.31 by June 24. During the COVID crash, STX fell 35.6% compared to a 33.9% decrease in the S&P. In the 2008 financial crisis, the stock plummeted 89.1% while the S&P dropped 56.8%.

Although Seagate benefits from AI/cloud-driven storage needs, it continues to confront risks, including technological shifts, capacity constraints, regulatory or supply chain challenges, pricing pressures, and reputational issues. Investor confidence is presently reflected in premium multiples (3x P/S), but with minimal cushion, a downturn could have a significant impact, particularly in contrast to competitors like WDC, which trades closer to 1x in challenging times.

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