Shares of Seagate Technology(NASDAQ: STX) have become one of the more surprising artificial intelligence (AI) winners in the market. Hard drives are not as glamorous as graphics processing units (GPUs) or cloud software. But data centers still need a place to store the flood of data created by AI applications, and investors have started treating Seagate as a front-line beneficiary of that build-out.
The move has been extraordinary. The storage stock is more than 700% over the past year as of this writing, and it jumped about 9% on Monday alone and is up sharply on Tuesday morning, too. Even after a run like that, could shares keep rising? If AI-driven demand keeps outstripping supply and Seagate continues to expand margins, the stock could still have room to run.
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Here’s a closer look at the business behind the move.
Image source: Getty Images.
AI is turning hard drives into a growth story
Seagate’s fiscal third quarter of 2026 (the period ended April 3, 2026) showed just how incredible the business’s momentum is. Revenue rose 44% year over year to $3.11 billion, while non-GAAP (adjusted) gross margin expanded to 47% from 36.2% in the year-ago quarter. Adjusted earnings per share more than doubled to $4.10.
Additionally, Seagate’s adjusted gross margin has climbed from 40.1% in fiscal Q1 to 42.2% in fiscal Q2. It reached 47% in fiscal Q3. And management guided for fiscal fourth-quarter revenue of about $3.45 billion at the midpoint, implying another sharp increase.
The driver is Seagate’s nearline business, which supplies high-capacity drives used in data centers. They store enormous amounts of data at a low cost per terabyte.
“Today, AI sits at the center of nearly all customer demand conversations,” said Seagate CEO Dave Mosley in the company’s fiscal third-quarter earnings call.
Management said nearline products accounted for close to 90% of total exabyte shipments in the March quarter. Even more, Seagate said nearline capacity is almost fully allocated through calendar 2027, supported by supply agreements with nearly all major cloud and hyperscale customers.
That visibility is important — and it’s central to the bull case for the stock.
After all, storage has historically been cyclical and unpredictable, with supply and demand swinging sharply. But today’s demand backdrop looks unusual, not just because of visibility, but also because Seagate has another main lever beyond unit growth: it is trying to push more capacity into each drive.
This is where heat-assisted magnetic recording (HAMR) comes in. Seagate’s Mozaic 4+ platform can deliver up to 44 terabytes per drive, more than 30% higher capacity than its first-generation Mozaic drives, while using the same number of disks and heads. Seagate also said it began revenue shipments of Mozaic 4 in late March and expects that platform to represent a majority of HAMR exabyte shipments exiting calendar 2026.
“We are going faster than what we were thinking on the transition to HAMR,” said Seagate chief financial officer Gianluca Romano during the call.
Can the stock keep rising?
The bull case is fairly simple. Seagate has tight supply, strong demand, a higher-capacity roadmap, and pricing visibility that extends well beyond the next quarter. In addition, management said it now expects annual revenue growth of at least 20% over the next few years, up from its prior low-to-mid-teens target.
Additionally, the model is throwing off significant cash. Seagate generated $953 million of free cash flow in fiscal Q3 — its highest level in more than a decade, and reduced gross debt by about $1.1 billion through the first nine months of fiscal 2026.
Still, investors should be careful.
The stock’s market capitalization is more than $230 billion as of this writing, and the stock trades at nearly 100 times earnings. A valuation like this assumes the current boom lasts and that margins stay high as HAMR ramps.
And the company’s own filings still point to the old risks. Seagate says nearline storage sales can vary because of the timing of cloud service provider spending, product qualification cycles, and customers’ ability to source other parts needed to build data centers. In addition, if supply eventually catches demand, pricing power can fade quickly in hardware markets like Seagate’s.
So, is Seagate stock a buy?
I think the stock could keep moving higher if AI storage demand remains stronger than supply through 2027. The business momentum is undeniable, and Seagate’s HAMR roadmap gives it a tangible way to turn demand into higher capacity and better margins.
But just because there’s a chance it could keep moving higher doesn’t make the stock a buy.
After a more than 700% one-year move, I’d approach shares cautiously here. For investors who think we’re still early in the AI boom, a small position may make sense. But at this valuation, the stock needs the boom to continue with very few interruptions. After all, this is still a cyclical hardware company — even if the current cycle looks far stronger than usual.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
