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Can Seagate Maintain its Record Margins as HAMR Adoption Accelerates?
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Key Takeaways
STX posted 40.1% non-GAAP gross margin on rising adoption of high-capacity nearline products.
Data-center revenue drove 80% of sales as cloud demand and higher-capacity HAMR shipments continued to climb.
STX ramped Mozaic HAMR drives, shipped 1M units, and advanced qualifications toward 36TB and 44TB products.
Seagate Technology Holdings plc (STX - Free Report) opened fiscal 2026 with exceptional momentum, raising the question of whether the company can sustain its newly achieved record margins as its Heat-Assisted Magnetic Recording (HAMR) roadmap gathers pace. In the first quarter of fiscal 2026, non-GAAP gross margin reached a record 40.1%, rising about 220 basis points (bps) quarter over quarter and roughly 680 bps year over year, driven by stronger adoption of Seagate's high-capacity nearline products and continued pricing initiatives.
Seagate is working with data center customers to speed up the qualifications of its high-capacity Mozaic HAMR drives. The data-center business, which includes cloud, enterprise and VIA customers, accounted for 80% of total revenue, underscoring the structural shift toward large-scale storage fueled by AI and cloud infrastructure. Cloud exabyte demand increased for the ninth consecutive quarter, and nearly 80% of nearline shipments were for capacities 24TB or higher as customers continue to mix up to higher capacity drives.
Seagate’s progress in areal density continues to reinforce a strong total cost of ownership (TCO) advantage for hard drives, particularly as AI-driven workloads heighten the need for efficient, high-capacity storage. Customers are increasingly adopting higher-capacity HAMR drives as the most cost-effective way to keep pace with accelerating data growth. The company has sharply ramped-up production of its 24–28 terabyte drives, which have become Seagate’s best-selling product family by both revenue and exabyte volume. During the September quarter, Seagate shipped more than 1 million Mozaic drives. As the only drives in the industry offering 3TB per disk, these HAMR-based Mozaic products are seeing strong demand from cloud customers.
The company currently has five global CSPs qualified on its Mozaic 3+ terabyte-per-disk products, offering up to 36TB per drive, and remains on track to qualify the remaining three CSPs by the first half of 2026. The Mozaic products are performing strongly in production, with Seagate on track to reach 50% exabyte crossover on nearline HAMR drives in the second half of 2026. Seagate has also begun qualifying with a second major CSP on the Mozaic 4+ terabyte-per-disk platform, offering up to 44TB per drive, with volume ramp expected in early 2026. Moreover, management is steadily advancing 5TB per disk technology, aiming for market launch in early 2028.
Management expects demand to remain solid, led by global cloud data centers. It projects higher revenue and margin expansion as customers adopt its next-generation storage solutions. For the fiscal second quarter, it expects revenues of $2.7 billion (+/- $100 million). At the midpoint, this indicates a 16% year-over-year improvement. Non-GAAP operating margin is projected to increase to approximately 30% at the midpoint of revenue guidance. Non-GAAP operating margin was 23.1% in second-quarter fiscal 2025.
However, Seagate faces challenges, such as exchange rate volatility, high debt burden and lingering macro and supply chain uncertainties. Moreover, stiff competition from Western Digital Corporation (WDC - Free Report) and Pure Storage, Inc. (PSTG - Free Report) persists.
Taking a Look at WDC & PSTG’s Margins
Western Digital’s fiscal first-quarter revenues and margins beat expectations, backed by a booming AI and cloud computing demand environment. Cloud end market (89% of total revenues) climbed 31%, driven by solid demand for higher-capacity nearline products. It shipped 204 exabytes, up 23% on strong growth in ePMR products up to 26TB CMR and 32TB UltraSMR, and aims to ensure scalability in HAMR qualification ahead of volume production in early 2027.
For second-quarter fiscal 2026, Western Digital anticipates non-GAAP revenues of $2.9 billion (+/- $100 million) at the mid-point of its guidance, up 20% year over year. It expects non-GAAP gross margin in the range of 44-45%. The company’s guidance reflects the company’s continued optimism about the demand trajectory for high-capacity storage, especially within data centers. The improving margin outlook also highlights Western Digital’s focus on cost efficiency, product mix optimization and strong pricing discipline.
Pure Storage is riding on healthy sales, solid enterprise and subscription momentum. Its Evergreen//One ensures SLA-backed performance, capacity and security with always-modern, disruption-free technology, while the rising uptake of Enterprise Data Cloud, hyperscaler gains and resilient execution support growth. Portworx drives demand as enterprises shift to cloud-native architectures, and innovation remains central with next-gen Flash solutions. Management shifted to range-based guidance, expecting fiscal 2026 revenues of $3.6-$3.63 billion, up 14% at the midpoint, 300 bps above its prior 11% growth outlook. For the fiscal third quarter, Pure Storage expects revenues in $950-$960 million band, implying an increase of 15% at the midpoint from the year-ago level. The non-GAAP operating income is expected to be $185-$195 million, with around 14% year-over-year growth at the midpoint.
Image: Bigstock
Can Seagate Maintain its Record Margins as HAMR Adoption Accelerates?
Key Takeaways
Seagate Technology Holdings plc (STX - Free Report) opened fiscal 2026 with exceptional momentum, raising the question of whether the company can sustain its newly achieved record margins as its Heat-Assisted Magnetic Recording (HAMR) roadmap gathers pace. In the first quarter of fiscal 2026, non-GAAP gross margin reached a record 40.1%, rising about 220 basis points (bps) quarter over quarter and roughly 680 bps year over year, driven by stronger adoption of Seagate's high-capacity nearline products and continued pricing initiatives.
Seagate is working with data center customers to speed up the qualifications of its high-capacity Mozaic HAMR drives. The data-center business, which includes cloud, enterprise and VIA customers, accounted for 80% of total revenue, underscoring the structural shift toward large-scale storage fueled by AI and cloud infrastructure. Cloud exabyte demand increased for the ninth consecutive quarter, and nearly 80% of nearline shipments were for capacities 24TB or higher as customers continue to mix up to higher capacity drives.
Seagate’s progress in areal density continues to reinforce a strong total cost of ownership (TCO) advantage for hard drives, particularly as AI-driven workloads heighten the need for efficient, high-capacity storage. Customers are increasingly adopting higher-capacity HAMR drives as the most cost-effective way to keep pace with accelerating data growth. The company has sharply ramped-up production of its 24–28 terabyte drives, which have become Seagate’s best-selling product family by both revenue and exabyte volume. During the September quarter, Seagate shipped more than 1 million Mozaic drives. As the only drives in the industry offering 3TB per disk, these HAMR-based Mozaic products are seeing strong demand from cloud customers.
The company currently has five global CSPs qualified on its Mozaic 3+ terabyte-per-disk products, offering up to 36TB per drive, and remains on track to qualify the remaining three CSPs by the first half of 2026. The Mozaic products are performing strongly in production, with Seagate on track to reach 50% exabyte crossover on nearline HAMR drives in the second half of 2026. Seagate has also begun qualifying with a second major CSP on the Mozaic 4+ terabyte-per-disk platform, offering up to 44TB per drive, with volume ramp expected in early 2026. Moreover, management is steadily advancing 5TB per disk technology, aiming for market launch in early 2028.
Management expects demand to remain solid, led by global cloud data centers. It projects higher revenue and margin expansion as customers adopt its next-generation storage solutions. For the fiscal second quarter, it expects revenues of $2.7 billion (+/- $100 million). At the midpoint, this indicates a 16% year-over-year improvement. Non-GAAP operating margin is projected to increase to approximately 30% at the midpoint of revenue guidance. Non-GAAP operating margin was 23.1% in second-quarter fiscal 2025.
However, Seagate faces challenges, such as exchange rate volatility, high debt burden and lingering macro and supply chain uncertainties. Moreover, stiff competition from Western Digital Corporation (WDC - Free Report) and Pure Storage, Inc. (PSTG - Free Report) persists.
Taking a Look at WDC & PSTG’s Margins
Western Digital’s fiscal first-quarter revenues and margins beat expectations, backed by a booming AI and cloud computing demand environment. Cloud end market (89% of total revenues) climbed 31%, driven by solid demand for higher-capacity nearline products. It shipped 204 exabytes, up 23% on strong growth in ePMR products up to 26TB CMR and 32TB UltraSMR, and aims to ensure scalability in HAMR qualification ahead of volume production in early 2027.
For second-quarter fiscal 2026, Western Digital anticipates non-GAAP revenues of $2.9 billion (+/- $100 million) at the mid-point of its guidance, up 20% year over year. It expects non-GAAP gross margin in the range of 44-45%. The company’s guidance reflects the company’s continued optimism about the demand trajectory for high-capacity storage, especially within data centers. The improving margin outlook also highlights Western Digital’s focus on cost efficiency, product mix optimization and strong pricing discipline.
Pure Storage is riding on healthy sales, solid enterprise and subscription momentum. Its Evergreen//One ensures SLA-backed performance, capacity and security with always-modern, disruption-free technology, while the rising uptake of Enterprise Data Cloud, hyperscaler gains and resilient execution support growth. Portworx drives demand as enterprises shift to cloud-native architectures, and innovation remains central with next-gen Flash solutions. Management shifted to range-based guidance, expecting fiscal 2026 revenues of $3.6-$3.63 billion, up 14% at the midpoint, 300 bps above its prior 11% growth outlook. For the fiscal third quarter, Pure Storage expects revenues in $950-$960 million band, implying an increase of 15% at the midpoint from the year-ago level. The non-GAAP operating income is expected to be $185-$195 million, with around 14% year-over-year growth at the midpoint.
STX Price Performance, Valuation and Estimates
In the past year, shares have gained 166.2% compared with the Zacks Computer Integrated Systems industry’s growth of 77.4%.
Image Source: Zacks Investment Research
In terms of forward price/earnings, STX’s shares are trading at 22.74X, lower than the industry’s 25.68X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for STX’s earnings for fiscal 2026 has been revised up 6.37% to $11.02 over the past 60 days.
Image Source: Zacks Investment Research
Currently, Seagate carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.