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Seagate Technology Holdings plc (STX - Free Report) has been sustaining strong gross margin expansion through a combination of disciplined pricing, improving product mix and the rapid adoption of its HAMR-based Mozaic platform. In the third quarter of fiscal 2026, Seagate reported a record non-GAAP gross margin of 47%, up 480 basis points (bps) sequentially and roughly 1,080 bps year over year. Revenues climbed 44% year over year to $3.1 billion. The company also generated nearly $1 billion in free cash flow, reflecting strong operational leverage and sustained demand from cloud and enterprise customers.
A major contributor to margin expansion has been Seagate’s transition toward higher-capacity HAMR drives. The company highlighted that Mozaic 4+, its second-generation HAMR platform, can deliver up to 44 terabytes per drive with minimal changes to bill of materials, allowing Seagate to increase storage density without significantly increasing manufacturing costs. Management emphasized that cost reductions are increasingly being driven by higher-capacity drive mix and technology efficiencies rather than factory utilization gains alone.
Seagate’s pricing strategy is also supporting profitability momentum. The company has finalized build-to-order agreements for fiscal 2027, locking in pricing, mix and volumes for a large portion of nearline capacity. Management noted that strong cloud demand, combined with tight supply conditions, continues to support favorable pricing trends. Executives added that profitability improvements are being driven by both pricing gains and the continued ramp of 40-terabyte HAMR drives.
Seagate expects the momentum to continue into fiscal 2027. The company guided for further sequential revenue and margin expansion, supported by rising AI-driven storage demand, increasing HAMR adoption and disciplined operational execution. With nearline capacity largely allocated through calendar 2027 and strong visibility into customer demand, Seagate appears well-positioned to sustain its gross margin expansion trajectory over the coming quarters.
For the fiscal fourth quarter, it expects revenues of $3.45 billion (+/- $100 million). At the midpoint, this indicates a 41% year-over-year improvement. At the midpoint of revenue guidance, non-GAAP operating margin is projected to increase in the low 40% range.
Taking a Look at STX’s Competitors’ Margin Growth
Western Digital Corporation (WDC - Free Report) reported a non-GAAP gross margin of 50.5% for third-quarter fiscal 2026, up 1,040 bps year over year and 440 bps sequentially, above its guidance (47-48%). Strong gross margins were driven by a richer mix of higher-capacity drives, disciplined pricing and tight cost management. With strong demand, pricing and improved visibility across cloud, consumer and client segments, it expects revenues of $3.65 billion (+/- $100 million) in fourth-quarter fiscal 2026, implying about 40% year-over-year growth at the midpoint. The company expects non-GAAP gross margin in the range of 51-52%.
Micron Technology (MU - Free Report) posted a non-GAAP gross profit of $7.75 billion for the fiscal second quarter, up 486% year over year and 131% sequentially. The fiscal second-quarter non-GAAP gross margin of 74.9% improved from the year-ago quarter’s 37.9% and the previous quarter’s 56.8%. The non-GAAP operating margin came in at 69%. Micron Technology posted a non-GAAP operating margin of 47% for the previous quarter, and it had a non-GAAP operating margin of 24.9% in the year-ago quarter. For the third quarter of fiscal 2026. The company anticipates revenues of $35.5 billion (+/-$750 million). For the quarter, Micron Technology projects a non-GAAP gross margin of approximately 81%.
In terms of forward price/earnings, STX’s shares are trading at 33.36X, higher than the industry’s 16.04X.
Image Source: Zacks Investment Research
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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Can Seagate Sustain Its Gross Margin Expansion Momentum?
Key Takeaways
Seagate Technology Holdings plc (STX - Free Report) has been sustaining strong gross margin expansion through a combination of disciplined pricing, improving product mix and the rapid adoption of its HAMR-based Mozaic platform. In the third quarter of fiscal 2026, Seagate reported a record non-GAAP gross margin of 47%, up 480 basis points (bps) sequentially and roughly 1,080 bps year over year. Revenues climbed 44% year over year to $3.1 billion. The company also generated nearly $1 billion in free cash flow, reflecting strong operational leverage and sustained demand from cloud and enterprise customers.
A major contributor to margin expansion has been Seagate’s transition toward higher-capacity HAMR drives. The company highlighted that Mozaic 4+, its second-generation HAMR platform, can deliver up to 44 terabytes per drive with minimal changes to bill of materials, allowing Seagate to increase storage density without significantly increasing manufacturing costs. Management emphasized that cost reductions are increasingly being driven by higher-capacity drive mix and technology efficiencies rather than factory utilization gains alone.
Seagate’s pricing strategy is also supporting profitability momentum. The company has finalized build-to-order agreements for fiscal 2027, locking in pricing, mix and volumes for a large portion of nearline capacity. Management noted that strong cloud demand, combined with tight supply conditions, continues to support favorable pricing trends. Executives added that profitability improvements are being driven by both pricing gains and the continued ramp of 40-terabyte HAMR drives.
Seagate expects the momentum to continue into fiscal 2027. The company guided for further sequential revenue and margin expansion, supported by rising AI-driven storage demand, increasing HAMR adoption and disciplined operational execution. With nearline capacity largely allocated through calendar 2027 and strong visibility into customer demand, Seagate appears well-positioned to sustain its gross margin expansion trajectory over the coming quarters.
For the fiscal fourth quarter, it expects revenues of $3.45 billion (+/- $100 million). At the midpoint, this indicates a 41% year-over-year improvement. At the midpoint of revenue guidance, non-GAAP operating margin is projected to increase in the low 40% range.
Taking a Look at STX’s Competitors’ Margin Growth
Western Digital Corporation (WDC - Free Report) reported a non-GAAP gross margin of 50.5% for third-quarter fiscal 2026, up 1,040 bps year over year and 440 bps sequentially, above its guidance (47-48%). Strong gross margins were driven by a richer mix of higher-capacity drives, disciplined pricing and tight cost management. With strong demand, pricing and improved visibility across cloud, consumer and client segments, it expects revenues of $3.65 billion (+/- $100 million) in fourth-quarter fiscal 2026, implying about 40% year-over-year growth at the midpoint. The company expects non-GAAP gross margin in the range of 51-52%.
Micron Technology (MU - Free Report) posted a non-GAAP gross profit of $7.75 billion for the fiscal second quarter, up 486% year over year and 131% sequentially. The fiscal second-quarter non-GAAP gross margin of 74.9% improved from the year-ago quarter’s 37.9% and the previous quarter’s 56.8%. The non-GAAP operating margin came in at 69%. Micron Technology posted a non-GAAP operating margin of 47% for the previous quarter, and it had a non-GAAP operating margin of 24.9% in the year-ago quarter. For the third quarter of fiscal 2026. The company anticipates revenues of $35.5 billion (+/-$750 million). For the quarter, Micron Technology projects a non-GAAP gross margin of approximately 81%.
STX’s Price Performance, Valuation & Estimates
In the past year, STX shares have skyrocketed 628%, outperforming the Computer Integrated Systems industry’s growth of 220.7%.
Image Source: Zacks Investment Research
In terms of forward price/earnings, STX’s shares are trading at 33.36X, higher than the industry’s 16.04X.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
STX currently boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.