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Seagate's Strengthening Free Cash Flow: Can Growth Continue?
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Key Takeaways
STX generated $953M in Q3 free cash flow, up 57% sequentially with a 31% margin.
Seagate's data center revenues surged 55%, driving 44% overall revenue growth.
STX is reducing debt and returning capital while maintaining disciplined capex levels.
Seagate Technology Holdings plc (STX - Free Report) is witnessing strengthening cash flows, with free cash flow (“FCF”) reaching $953 million in the third quarter of fiscal 2026, up 57% sequentially and the highest level in a decade, as highlighted by the management. This translated to a robust 31% FCF margin. Year to date, FCF stands at $1.987 billion.
Seagate is witnessing explosive demand for its storage solutions amid the proliferation of AI. This has resulted in strong revenue growth and improved profitability numbers. Quarterly non-GAAP revenues of $3.11 billion exceeded the Zacks Consensus Estimate by 5.7% and rose 44% year over year. The shift toward inference-driven workloads, agentic AI and multimodal applications is leading to exponential growth in data creation and storage needs, added Seagate.
The data center segment accounted for 80% of total revenues, at $2.5 billion, representing a 55% year-over-year growth. Seagate shipped 199 exabytes of HDD storage, up 39% year over year and 5% sequentially.
Non-GAAP income from operations of $1.167 billion rose $507 million from a year ago. Non-GAAP operating margin increased to 37.5% from 23.5% year over year. Non-GAAP adjusted EBITDA of $1.2 billion more than doubled from the prior-year quarter.
Moreover, capital discipline remains intact. Capital expenditures were $151 million, or nearly 4% of revenues, aligning with the company’s targeted range. This disciplined investment approach, alongside operational efficiencies, is allowing more earnings to translate into free cash flow.
Seagate expects FCF generation to improve through the remaining quarter in calendar 2026, buoyed by robust demand, operational efficiencies and capital discipline. The company is using this cash to fortify its balance sheet, having reduced gross debt by $1.1 billion year to date, while also returning capital ($191 million to its shareholders via dividends in the fiscal third quarter) to shareholders.
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 revenues. STX is also focused on reducing its leverage.
FCF Numbers for Competitors
Western Digital Corporation (WDC - Free Report) is one of Seagate’s closest competitors and one of the beneficiaries of the AI cycle. It generated $1.1 billion in cash from operations compared with $508 million in the prior-year quarter in the fiscal third quarter. Western Digital’s disciplined capex of $145 million helped drive a strong free cash flow of $978 million, up 124% year over year.
The company repurchased shares worth $752 million and paid $43 million in dividends. Western Digital has returned a total of $2.2 billion to its shareholders through buybacks and dividends since launching the capital return program in the fourth quarter of fiscal 2025.
NetApp (NTAP - Free Report) continues to benefit from demand for modern all-flash arrays that support enterprise modernization and AI workloads. For the fourth quarter of fiscal 2026, net cash from operations came in at $950 million compared with $675 million in the previous-year quarter. Free cash flow was $900 million (free cash flow margin of 46.2%) compared with $640 million in the prior-year quarter (37%).
NetApp returned $303 million to its shareholders during the quarter through $200 million in share repurchases and $103 million in dividends. NetApp returned $1.36 billion to its shareholders through dividends and buybacks for fiscal 2026.
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Seagate's Strengthening Free Cash Flow: Can Growth Continue?
Key Takeaways
Seagate Technology Holdings plc (STX - Free Report) is witnessing strengthening cash flows, with free cash flow (“FCF”) reaching $953 million in the third quarter of fiscal 2026, up 57% sequentially and the highest level in a decade, as highlighted by the management. This translated to a robust 31% FCF margin. Year to date, FCF stands at $1.987 billion.
Seagate is witnessing explosive demand for its storage solutions amid the proliferation of AI. This has resulted in strong revenue growth and improved profitability numbers. Quarterly non-GAAP revenues of $3.11 billion exceeded the Zacks Consensus Estimate by 5.7% and rose 44% year over year. The shift toward inference-driven workloads, agentic AI and multimodal applications is leading to exponential growth in data creation and storage needs, added Seagate.
The data center segment accounted for 80% of total revenues, at $2.5 billion, representing a 55% year-over-year growth. Seagate shipped 199 exabytes of HDD storage, up 39% year over year and 5% sequentially.
Seagate Technology Holdings PLC Free Cash Flow (Quarterly)
Seagate Technology Holdings PLC free-cash-flow-quarterly | Seagate Technology Holdings PLC Quote
Non-GAAP income from operations of $1.167 billion rose $507 million from a year ago. Non-GAAP operating margin increased to 37.5% from 23.5% year over year. Non-GAAP adjusted EBITDA of $1.2 billion more than doubled from the prior-year quarter.
Moreover, capital discipline remains intact. Capital expenditures were $151 million, or nearly 4% of revenues, aligning with the company’s targeted range. This disciplined investment approach, alongside operational efficiencies, is allowing more earnings to translate into free cash flow.
Seagate expects FCF generation to improve through the remaining quarter in calendar 2026, buoyed by robust demand, operational efficiencies and capital discipline. The company is using this cash to fortify its balance sheet, having reduced gross debt by $1.1 billion year to date, while also returning capital ($191 million to its shareholders via dividends in the fiscal third quarter) to shareholders.
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 revenues. STX is also focused on reducing its leverage.
FCF Numbers for Competitors
Western Digital Corporation (WDC - Free Report) is one of Seagate’s closest competitors and one of the beneficiaries of the AI cycle. It generated $1.1 billion in cash from operations compared with $508 million in the prior-year quarter in the fiscal third quarter. Western Digital’s disciplined capex of $145 million helped drive a strong free cash flow of $978 million, up 124% year over year.
The company repurchased shares worth $752 million and paid $43 million in dividends. Western Digital has returned a total of $2.2 billion to its shareholders through buybacks and dividends since launching the capital return program in the fourth quarter of fiscal 2025.
NetApp (NTAP - Free Report) continues to benefit from demand for modern all-flash arrays that support enterprise modernization and AI workloads. For the fourth quarter of fiscal 2026, net cash from operations came in at $950 million compared with $675 million in the previous-year quarter. Free cash flow was $900 million (free cash flow margin of 46.2%) compared with $640 million in the prior-year quarter (37%).
NetApp returned $303 million to its shareholders during the quarter through $200 million in share repurchases and $103 million in dividends. NetApp returned $1.36 billion to its shareholders through dividends and buybacks for fiscal 2026.
STX Price Performance, Valuation and Estimates
In the past month, STX’s shares are up 6.2% compared with Zacks Computer Integrated Systems industry’s growth of 17.9%.
Image Source: Zacks Investment Research
In terms of forward price/earnings, STX’s shares are trading at 33.68X, up from the industry’s 17.67X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for STX’s earnings for fiscal 2026 has been revised up 15.3% to $14.89 over the past 60 days.
Image Source: Zacks Investment Research
Currently, Seagate sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.