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STX Posts Record Q1 FY27 Profit: Can AI Storage Demand Drive Growth?
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Key Takeaways
STX's shares have soared 56.8% in the past year.
STX trades at 9.94 forward earnings, above the industry's 7.79 valuation multiple.
Fiscal 2027 and 2028 earnings estimates rose 1.8% to $36.72 and 2.08% to $59.49, respectively.
Seagate Technology Holdings plc (STX - Free Report) has reported record profitability and its highest-ever free cash flow for the September quarter, highlighting the benefits of rising storage demand, disciplined pricing and advances in HAMR technology. The company also made significant progress in strengthening its balance sheet by reducing debt and returning capital to shareholders, while its second-quarter fiscal 2027 outlook points to continued momentum, supported by growing data center requirements and the expanding use of AI.
Seagate's non-GAAP gross margin expanded to 57.8% in first-quarter fiscal 2027 from 52.7% in the previous quarter and 40.1% a year earlier. Non-GAAP operating margin rose to 50.7% from 44.6% a quarter ago, backed by favorable pricing, product mix and expense discipline. Revenue increased 61% year over year to $4.23 billion, while non-GAAP EPS reached $7.68 from $2.61. Free cash flow hit a record $1.48 billion from $1.12 billion a quarter ago. Management projects second-quarter fiscal 2027 revenue of $4.8 billion (+/-$100 million) and non-GAAP EPS of $9.20 (+/-20 cents). Operating margin is expected to approach the mid-50% range, with capital spending maintained at 4-6% of revenue.
Robust hyperscaler demand, tight supply conditions and multi-year contracts extending through 2030 support visibility into growth. The ramp-up of HAMR technology and higher-capacity Mozaic drives is expected to boost exabyte shipments and lower costs per terabyte. Recently, STX's Mozaic drives achieved a key Broadcom interoperability milestone, while Azure qualification and rising AI storage demand support adoption. Seagate reduced debt to about $1.6 billion after paying down debt, generating nearly $1.5 billion in free cash flow last quarter. It increased the quarterly dividend to 76 cents per share and plans to ramp up share repurchases, aiming for investment-grade credit status.
However, competition from SSDs and other storage technologies like Western Digital Corporation (WDC - Free Report) and Micron Technology (MU - Free Report) could affect product demand and pricing in certain applications.
Will STX's Margin Edge Hold as Competitors Catch Up?
WDC reported better-than-expected fiscal first-quarter sales, margins and free cash flow, led by multi-year customer visibility and a technology-led strategy focused on areal density. Non-GAAP gross margin reached 58.1%, expanding 1,420 basis points (bps) year over year and 370 bps sequentially. Average price per terabyte increased 28% year over year compared with growth in the high teens during the preceding quarter. Pricing gains, richer capacity mix and operating leverage have more than offset those costs. For the second quarter of fiscal 2027, management expects revenue of $5.1 billion, (+/-$100 million), non-GAAP gross margin of 60-61%, operating expenses of $400-$410 million and EPS of $5.80, (+/- 20 cents).
MU’s technology roadmap and strategic customer agreements increase revenue visibility while supporting pricing and margins. Tight DRAM supply remains a major earnings driver for Micron. Fourth-quarter fiscal 2026 DRAM revenue reached $39.8 billion, rising 27% sequentially. Bit shipments increased in the mid-single-digit range, while prices increased in the high-teens percentage range. These gains helped lift non-GAAP gross margin to 87% from 45.7% a year earlier. First-quarter fiscal 2027 non-GAAP gross margin is guided to approximately 86.25%, and management expects that quarter to mark the fiscal 2027 margin floor, with higher gross margins thereafter. SCA floor pricing is also expected to support margins above prior cycle peaks.
STX Price Performance, Valuation and Estimates
In the past year, STX shares have gained 56.8% compared with the Computer Integrated Systems industry’s growth of 61.1%.
Image Source: Zacks Investment Research
Going by the price/earnings ratio, the company’s shares currently trade at 9.94 forward earnings compared with 7.79 for the industry.
Image Source: Zacks Investment Research
STX is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2027 have been revised up 7.4% to $38.77 over the past 60 days, while estimates for fiscal 2028 have risen 6.4% to $62.02.
View the Zacks #1 Rank List
Image: Bigstock
STX Posts Record Q1 FY27 Profit: Can AI Storage Demand Drive Growth?
Key Takeaways
Seagate Technology Holdings plc (STX - Free Report) has reported record profitability and its highest-ever free cash flow for the September quarter, highlighting the benefits of rising storage demand, disciplined pricing and advances in HAMR technology. The company also made significant progress in strengthening its balance sheet by reducing debt and returning capital to shareholders, while its second-quarter fiscal 2027 outlook points to continued momentum, supported by growing data center requirements and the expanding use of AI.
Seagate's non-GAAP gross margin expanded to 57.8% in first-quarter fiscal 2027 from 52.7% in the previous quarter and 40.1% a year earlier. Non-GAAP operating margin rose to 50.7% from 44.6% a quarter ago, backed by favorable pricing, product mix and expense discipline. Revenue increased 61% year over year to $4.23 billion, while non-GAAP EPS reached $7.68 from $2.61. Free cash flow hit a record $1.48 billion from $1.12 billion a quarter ago. Management projects second-quarter fiscal 2027 revenue of $4.8 billion (+/-$100 million) and non-GAAP EPS of $9.20 (+/-20 cents). Operating margin is expected to approach the mid-50% range, with capital spending maintained at 4-6% of revenue.
Robust hyperscaler demand, tight supply conditions and multi-year contracts extending through 2030 support visibility into growth. The ramp-up of HAMR technology and higher-capacity Mozaic drives is expected to boost exabyte shipments and lower costs per terabyte. Recently, STX's Mozaic drives achieved a key Broadcom interoperability milestone, while Azure qualification and rising AI storage demand support adoption. Seagate reduced debt to about $1.6 billion after paying down debt, generating nearly $1.5 billion in free cash flow last quarter. It increased the quarterly dividend to 76 cents per share and plans to ramp up share repurchases, aiming for investment-grade credit status.
However, competition from SSDs and other storage technologies like Western Digital Corporation (WDC - Free Report) and Micron Technology (MU - Free Report) could affect product demand and pricing in certain applications.
Will STX's Margin Edge Hold as Competitors Catch Up?
WDC reported better-than-expected fiscal first-quarter sales, margins and free cash flow, led by multi-year customer visibility and a technology-led strategy focused on areal density. Non-GAAP gross margin reached 58.1%, expanding 1,420 basis points (bps) year over year and 370 bps sequentially. Average price per terabyte increased 28% year over year compared with growth in the high teens during the preceding quarter. Pricing gains, richer capacity mix and operating leverage have more than offset those costs. For the second quarter of fiscal 2027, management expects revenue of $5.1 billion, (+/-$100 million), non-GAAP gross margin of 60-61%, operating expenses of $400-$410 million and EPS of $5.80, (+/- 20 cents).
MU’s technology roadmap and strategic customer agreements increase revenue visibility while supporting pricing and margins. Tight DRAM supply remains a major earnings driver for Micron. Fourth-quarter fiscal 2026 DRAM revenue reached $39.8 billion, rising 27% sequentially. Bit shipments increased in the mid-single-digit range, while prices increased in the high-teens percentage range. These gains helped lift non-GAAP gross margin to 87% from 45.7% a year earlier. First-quarter fiscal 2027 non-GAAP gross margin is guided to approximately 86.25%, and management expects that quarter to mark the fiscal 2027 margin floor, with higher gross margins thereafter. SCA floor pricing is also expected to support margins above prior cycle peaks.
STX Price Performance, Valuation and Estimates
In the past year, STX shares have gained 56.8% compared with the Computer Integrated Systems industry’s growth of 61.1%.
Image Source: Zacks Investment Research
Going by the price/earnings ratio, the company’s shares currently trade at 9.94 forward earnings compared with 7.79 for the industry.
Image Source: Zacks Investment Research
STX is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2027 have been revised up 7.4% to $38.77 over the past 60 days, while estimates for fiscal 2028 have risen 6.4% to $62.02.
Image Source: Zacks Investment Research
STX currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.