Data storage manufacturer Seagate (NASDAQ: STX) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 21.3% year on year to $2.63 billion. Guidance for next quarter’s revenue was better than expected at $2.7 billion at the midpoint, 1.8% above analysts’ estimates. Its non-GAAP profit of $2.61 per share was 8.8% above analysts’ consensus estimates.

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StockStory’s Take

Seagate’s third quarter results were met with a positive market reaction, as the company reported notable growth in both revenue and profitability. Management attributed this performance primarily to robust demand from global cloud service providers and enterprise customers, especially for high-capacity nearline hard drives. CEO Dave Mosley emphasized the importance of Seagate’s HAMR-based Mozaic platforms in capturing this demand, noting that “the data center end market, which is comprised of nearline sales into cloud, enterprise and VIA customers, represented 80% of overall revenue.” This surge in data center activity, fueled by the proliferation of AI applications and a sharp rise in unstructured video data, was the dominant driver of Seagate’s strong quarter.

Looking forward, Seagate’s guidance reflects continued optimism around sustained demand from cloud and enterprise customers, driven in large part by the acceleration of AI inferencing workloads and the adoption of next-generation video creation tools. Management stated that the company’s nearline production is “largely committed under build-to-order contracts through calendar 2026,” which provides visibility into future demand. CFO Gianluca Romano highlighted that Seagate intends to expand margins and profitability by advancing its product transition to higher-capacity HAMR drives, stating, “The mix is very important and every quarter is different. You will see more and more transition to HAMR.”

Key Insights from Management’s Remarks

Management credited the quarter’s momentum to the rapid shift toward higher-capacity drives, driven by cloud service providers’ evolving storage needs and the broad impact of AI on data generation.

• Cloud and video demand surge: Seagate saw significant uptake from global cloud customers as AI-driven workloads and a rapid increase in video content—both user-generated and AI-generated—drove unprecedented storage needs. CEO Dave Mosley cited that “over 80% of Internet traffic is video content,” highlighting video’s role in boosting storage demand.

• HAMR technology transition: The company continued its transition to Heat-Assisted Magnetic Recording (HAMR) technology, with five global cloud service providers now qualified on Mozaic 3+ terabyte per disk drives. Over 1 million Mozaic drives shipped in the quarter, supporting Seagate’s aim for a 50% exabyte crossover on nearline HAMR drives in the second half of 2026.

• Long-term contracts provide visibility: Seagate has secured multi-year, build-to-order agreements with major data center customers, providing clear demand visibility through calendar 2027. These agreements reinforce management’s belief in sustained strong end-market demand and help support investment in next-generation products.

• Margin expansion from product mix: Gross and operating margins improved as higher-capacity drives and effective pricing strategies lifted profitability. CFO Gianluca Romano noted that the company’s margin growth “reflects the benefit of increased adoption of our latest generation products and ongoing execution of our pricing strategy.”

• Edge IoT segment softness: While data center growth was robust, the edge IoT (Internet of Things) segment—covering consumer, client, and network-attached storage—experienced lower sequential sales. However, management expects seasonal improvement in edge IoT revenue in the coming quarter.

Drivers of Future Performance

Seagate’s outlook is shaped by ongoing AI adoption, the shift to higher-capacity storage, and strategic customer contracts that anchor demand and profitability.

• AI inferencing to drive growth: Management expects continued acceleration in AI inferencing workloads to fuel higher storage requirements, particularly as applications generate and consume more video and unstructured data. CEO Dave Mosley emphasized that “AI-generated videos promise to further fuel demand growth,” which should support both near-term and long-term sales.

• Product transition supports profitability: Seagate’s strategy centers on advancing its HAMR product roadmap, with a focus on qualifying new high-capacity drives and increasing the mix of these products in customer deployments. Romano stated that “more transition to HAMR… will be a good boost to our reduction of cost per terabyte.” This transition is expected to help maintain or expand margins, despite potential unit volume fluctuations.

• Visibility from long-term agreements: The company’s multi-year build-to-order contracts with cloud providers help mitigate demand volatility and enable disciplined investment in manufacturing capacity. However, management acknowledged that yields and supply chain execution remain critical variables in ramping new products and meeting contractual obligations.

Catalysts in Upcoming Quarters

Looking ahead, our team will monitor (1) the pace of customer qualification and adoption for new high-capacity HAMR drives, (2) execution on manufacturing transitions and yield improvements for Mozaic 4+ products, and (3) the impact of AI- and video-driven demand on data center storage needs. We will also track the stability of long-term contracts and margin trends as Seagate scales its next-generation platforms.

Seagate Technology currently trades at $237.15, up from $222.82 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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