What Happened?
Shares of data storage manufacturer Seagate (NASDAQ:STX) jumped 9.2% in the morning session after the company reported fourth-quarter results that blew past analysts' EPS expectations, while revenue was roughly in line. On the other hand, its revenue and EPS guidance for the next quarter fell below consensus estimates, indicating expectations were on the high side ahead of the earnings release. However, taking a closer look at the results, top-line growth accelerated during the quarter, up 49.5% y/y, driven by what management considers "structural improvements in the business and our focus on value capture in an improving demand environment," including some of the company's AI bets. Overall, this was a mixed yet decent quarter.
Following the results, Benchmark upgraded the stock's rating from Hold to Buy, adding, "While a supply constraint is expected to impact the March quarter, we see continued strong cloud demand along with growing AI business driving results in 2H25 and 2026, where we project non-GAAP earnings growing 25% y/y to $9.96/share.".
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What The Market Is Telling Us
Seagate Technology’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 10 months ago when the stock gained 9.9% on the news that Morgan Stanley analyst upgraded the stock's rating from Equal Weight (Neutral) to Overweight (Buy) and raised the price target from $73 to $115. The new price target implied a potential 20% upside from where shares traded when the upgrade was announced.
The analyst added, "Our bottom-up analysis indicates that STX's long-term [gross margin] range could be 32-35% (vs. mgmt's 30-33% target), and we are 200-300bps ahead of Street GMs in FY25/26...We also believe Gen AI will be a longer-term 'rising tides lifts all boats' tailwind for storage, causing us to raise our FY26-27 HDD exabyte forecast by 4%."
Seagate Technology is up 28.7% since the beginning of the year, and at $111.22 per share, it is trading close to its 52-week high of $112.64 from October 2024. Investors who bought $1,000 worth of Seagate Technology’s shares 5 years ago would now be looking at an investment worth $1,816.
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