Shares of Seagate Technology STX fell about 2% in premarket trading on Wednesday despite the data-storage company reporting stronger-than-expected fiscal first-quarter earnings and issuing an upbeat outlook.
Investors likely weighed slowing shipment growth against the longer-term demand outlook for artificial intelligence infrastructure.
The stock’s decline came after a strong rally this year, with shares up 132% so far.
The pullback may also have reflected profit-taking after recent gains or a sell-the-news reaction to results investors had already anticipated.
Seagate beats estimates and raises outlook
Seagate reported revenue of $4.23 billion for the September quarter, compared with analyst estimates of about $4.15 billion.
Earnings per share came in at $7.68, above expectations of $7.45.
The company forecast December-quarter revenue of about $4.8 billion and earnings per share of $9.20, exceeding consensus estimates of $4.55 billion and $8.66, respectively.
The revenue guidance implies growth of about 70% year over year and 13% from the previous quarter.
Gross margin stood at 57.8%, while cash flow from operations reached $1.7 billion. Free cash flow totalled $1.5 billion.
“Seagate delivered another quarter of record profitability and our highest ever free cash flow in the September quarter, demonstrating the earnings power of our business amid a strengthening demand environment,” said Dave Mosley, Seagate’s chair and chief executive officer.
“Data creation, retention and reuse continue to compound storage demand with long term customer demand visibility reinforcing our view of a multi-year growth phase.
“Our HAMR-based technology roadmap enables us to address growing exabyte demand through areal density gains while maintaining supply discipline.
“Combined with our value-based pricing strategy and strengthened balance sheet, we believe Seagate can deliver profitable growth, strong cash generation and increased shareholder returns over the long term,” Mosley concluded.
Shipment growth slowdown weighs on shares
Wedbush Securities analyst Matt Bryson pointed to a moderation in shipment growth and the outlook for gross margins as possible reasons for the market reaction.
“So they had a really strong quarter last quarter in terms of shipment growth and it just wasn’t that strong in fiscal Q1. And then the second thing is if you think about gross margins going forward, it looks like the implied guide has about 60%, which suggests that gross margin growth is slowing,” said Wedbush Securities analyst Matt Bryson in a CNBC interview.
Bryson added that the perceived slowdown was cyclical, following an exceptionally strong previous quarter.
Analysts remain bullish on Seagate
Despite the share-price weakness, analysts maintained positive views on Seagate’s longer-term prospects amid rising demand for data storage.
Evercore ISI reiterated its Outperform rating and $1,000 price target, implying about 50% upside from Tuesday’s closing price.
Baird raised its price target to $1,350 from $1,080 while maintaining an Outperform rating.
The new target implies upside of more than 100%.
Baird said the stock’s decline reflected a one-quarter slowdown in exabyte growth driven by a product transition, with growth expected to reaccelerate in the December quarter.
The firm also noted that December-quarter guidance would mark the fourth consecutive quarter of year-over-year gross-margin gains exceeding those of its competitor.
It cited widening supply-demand imbalances and exabyte growth driven solely by higher storage densities as further reasons for optimism.
Earlier this month, analyst Erik Woodring raised Morgan Stanley’s price target on Seagate to $1,200 from $1,187.
Woodring said the hard-drive market is showing similarities to the memory market a year ago, before surging demand from AI infrastructure investments drove substantial gains in memory stocks such as Micron Technology and SanDisk.
The firm said recent industry checks point to a potential supply shortfall of around 400 exabytes in 2027 and 2028.
It also highlighted spot hard-drive transactions at prices two to five times higher than contracted levels, suggesting potential support for margins and earnings.
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