Seagate Technology Holdings plc STX

Seagate highlighted that AI is reshaping hard drive demand by elevating the economic value of data, leading to growing demand for high-capacity nearline drives. The shift from AI model training to inferencing is driving the need for large capacity storage, as inferencing consumes and generates massive volumes of data. This trend is evident in the deployment of large-scale inferencing applications by global CSPs, relying on multimodal inputs like text, audio, and video, and is expected to further fuel unstructured data generation.

Momentum continues to build for Seagate's HAMR-based Mozaic platforms. The company achieved significant milestones, including qualifying 5 global CSPs on Mozaic 3+ terabyte per disk products, which offer capacities up to 36 terabytes per drive. Over 1 million Mozaic drives were shipped in the September quarter, performing well in live production environments. Seagate is on track to qualify the remaining 3 global CSPs within the first half of calendar 2026 and has started qualification with a second major CSP on the Mozaic 4+ terabyte per disk platform, which will offer capacities up to 44 terabytes.

The data center end market, comprising nearline sales into cloud, enterprise, and VIA customers, represented 80% of overall revenue at $2.1 billion, growing 34% year-on-year. Demand strength was led by global cloud service providers, with notable sequential revenue growth from enterprise customers. Seagate shipped 159 exabytes into data center customers, with close to 80% of nearline volume on drives at or above 24 terabytes, reflecting customers' shift to higher capacity drives. This strong data center growth more than offset lower sequential sales in the Edge IoT market.

Seagate delivered strong operational execution, resulting in enhanced structural economics. The company achieved a record non-GAAP gross margin of 40.1%, up 220 basis points sequentially, and expanded non-GAAP operating margin by 280 basis points to 29%. This margin growth reflects the benefit of increased adoption of the latest generation products and ongoing execution of its pricing strategy. Non-GAAP EPS of $2.61 exceeded the high end of guidance, demonstrating strong financial performance.

Seagate returned $153 million to shareholders through dividends and repurchased $29 million of common stock. The company increased its quarterly dividend by approximately 3% to $0.74 per share, reflecting confidence in its cash flow generation capabilities. Cash and cash equivalents increased 25% sequentially to $2.4 billion, with ample liquidity. Seagate exited the quarter with a net leverage ratio of 1.5x and is exploring opportunities to further reduce debt, supporting a positive leverage ratio trajectory and leading to an S&P credit rating upgrade.