AI is creating an enormous wave of demand for data storage, and few companies are benefiting more directly than Seagate Technology Holdings plc (STX Quick QuoteSTX - Free Report) . The company’s shares have surged 196.8% in the year-to-date period, outperforming the Zacks Computer-Integrated Systems industry, the Zacks Computer & Technology sector, and the S&P 500’s growth of 81.7%, 17.3%, and 9.7%, respectively.

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Seagate's stock has also outperformed its cut-throat competitor in the HDD market, Western Digital Corporation (WDC Quick QuoteWDC - Free Report) , which has soared 186.9%, as well as competitors in the broader storage space like Micron Technology (MU Quick QuoteMU - Free Report)  and Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) , which have risen 181.6% and 108.1%, respectively, over the same period. As AI models become larger and enterprises deploy inference workloads at scale, organizations need more infrastructure to store, retrieve and manage data efficiently. That trend has pushed Seagate stock sharply higher over the past year.

Western Digital is a diversified storage company offering a broad portfolio of HDD and NAND-based SSD solutions used across desktop PCs, servers, NAS devices, gaming consoles, DVRs and other consumer electronics. AMD delivers industry-leading total cost of ownership, efficiency and advanced AI capabilities, enabling high performance, reliability and scalability across data centers, the edge and end-user environments. Micron manufactures and markets high-performance memory and storage technologies, including DRAM, NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.

STX recently hit a 52-week high of $841.3. The key question for investors now is whether the stock still has room to run or whether expectations have become too aggressive. To evaluate that, investors should review the company’s recent results, growth catalysts, risks and valuation to see if the stock still deserves a place in their portfolios.

Let’s explore this in detail.

STX’s Financial Momentum Appears Strong

The company’s latest quarterly results showed why investors have become bullish. Seagate posted an exceptionally strong March-quarter performance, highlighting resilient demand and the strength of its business model. Revenue surged 44% year over year, gross margin reached a record level, non-GAAP operating income more than doubled, and free cash flow climbed to nearly $1 billion, among the highest in STX’s history. Management raised its long-term outlook, now expecting at least 20% annual revenue growth over the next few years, driven by strong cloud demand and continued hyperscaler investments in AI infrastructure, with the March quarter marking the 10th straight period of cloud-led revenue growth. 

AI inference drives a structural increase in data generation. Every enterprise AI deployment creates new storage needs. This trend may continue for years as AI models grow larger, companies store more training datasets, cloud providers require vast archival capacity and video AI and multimodal AI demand immense storage volumes. All of these benefits directly support Seagate. Additionally, Seagate’s HAMR technology could become a significant competitive edge. In the fiscal third quarter, EPS grew 115% year over year thanks to the strong execution of strategic goals and the effective use of the technology roadmap to meet increasing demand.

Management emphasized that Seagate is entering a new phase of structural growth fueled by AI demand, rising Mozaic adoption and disciplined execution. HDDs remain the most cost-effective solution for large-scale AI storage, aligning with Seagate’s mid-20% exabyte growth target. Its Mozaic 4+ HAMR platform offers up to 44TB per drive, more than 30% higher capacity than previous versions, with scalable manufacturing efficiency. Mozaic 4 is expected to become the leading HAMR product by late 2026, while Mozaic 5, aimed at up to 50TB, is on track for late 2027 qualification. As production increases, Seagate plans to expand HAMR beyond hyperscale clients into enterprise and edge markets, driving further efficiencies and supporting long-term growth.

Cloud continues to dominate Seagate’s data center business, accounting for most revenue and capacity shipments. The company is ramping its Mozaic platform to meet rising cloud demand, with shipments reaching 75% of leading global cloud customers in the March quarter and full qualification expected soon. In enterprise OEM data centers, revenue rose sequentially, driven by AI deployments and renewed demand for hybrid and tiered storage. Meanwhile, edge and IoT contributed the remaining 20% of revenue at $612 million, up 12% year over year and 2% sequentially. Higher supply and NAND prices, particularly in the client and consumer markets, offset the typical seasonal slowdown in March.

STX’s Hefty Cash Strength Fuels Long-Term Growth

Seagate generates solid cash flow, which provides management the opportunity to invest in product innovations, acquisitions and business development. At the same time, the company has historically returned significant cash through a combination of share repurchases and dividends to reward its shareholders with risk-adjusted returns.  For the third quarter of fiscal 2026, Seagate reported $1.1 billion in cash flow from operations and $953 million in free cash flow. During the quarter, the company retired approximately $641 million in debt, improving its leverage profile and returned $191 million to shareholders through dividends and share repurchases.

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Additionally, the company declared a quarterly dividend of 74 cents per share. For income-focused investors, Seagate remains an attractive option, offering consistent dividend payouts supported by strong cash generation. Seagate spent $151 million on capital expenditures in the March quarter, representing about 4% of year-to-date revenue. It expects free cash flow to strengthen over the rest of calendar 2026, driven by steady demand, improved operational efficiency and disciplined capital spending. The company will maintain capital discipline while continuing the transition and ramp-up of HAMR technology, with fiscal 2026 capital spending expected to remain within its target range of 4–6% of revenue.

For the June quarter, management expects geopolitical tensions, including the Middle East conflict, not to materially impact operations, as the company has already taken steps to minimize supply chain and logistics disruptions. It remains confident in underlying demand trends, with AI continuing to drive the need for large-scale storage capacity. Supported by rising exabyte demand, ongoing Mozaic product qualification and disciplined pricing, Seagate expects June-quarter revenue of $3.45 billion (+/-$100 million), representing roughly 41% year-over-year growth at the midpoint.

Non-GAAP operating expenses are projected at about $295 million, with operating margin expected in the low-40% range. Non-GAAP EPS is forecast at $5 per share (+/- 20 cents).

However, there are risks that investors should be wary of. Competition in the storage market remains intense, with rivals such as WDC, MU and emerging NAND providers all competing for AI-related storage spending. While Seagate maintains a strong position in HDDs, the long-term balance between HDD and flash storage technologies remains uncertain. In addition, the storage industry has historically been cyclical and prone to pricing volatility. Although AI demand may support stronger long-term growth trends, the sector is still unlikely to be fully insulated from future downturns.

Positive Estimate Revision Trend for STX

STX is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2026 have increased 15.6% to $14.89 over the past 60 days, while the same for fiscal 2027 has gone up 34.9% to $26.34.

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STX’s Valuation: The Critical Piece

Going by the price/earnings ratio, the company’s shares currently trade at 33.99 forward earnings compared with 16.18 for the industry.

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In comparison, the forward 12-month price/earnings multiple for MU, AMD and WDC are 9.25X, 60.1X and 31.3X, respectively.

Is STX Still a Buy?

STX appears well-positioned to benefit from one of the biggest underappreciated AI trends: storage demand. While companies making GPUs get most of the attention, AI systems cannot function without a massive data storage infrastructure. Seagate is emerging as one of the beneficiaries of that shift.

For long-term investors, Seagate still appears attractive for those who believe AI infrastructure spending will remain strong, data generation will continue to surge, HDDs will stay essential for mass-capacity storage and the company can maintain its pricing power. The company is increasingly evolving beyond a traditional hard-drive manufacturer into a key infrastructure supplier for the growing AI economy. However, after its sharp rally, the stock no longer looks inexpensive, and volatility could remain elevated.

For aggressive growth investors who can tolerate volatility, STX looks like a compelling bet now despite the rally. STX currently boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.