Can Seagate's Data Center Business Maintain its Growth Momentum?

Seagate Technology Holdings plc’s STX data center business continued to post strong performance during the third quarter of fiscal 2026, supported by sustained demand from cloud and enterprise customers. In the third quarter, the data center segment accounted for 80% of total revenue and 88% of exa…

Seagate Technology Holdings plc’s STX data center business continued to post strong performance during the third quarter of fiscal 2026, supported by sustained demand from cloud and enterprise customers. In the third quarter, the data center segment accounted for 80% of total revenue and 88% of exabyte shipments. The company shipped 175 exabytes to the data center market, representing a 6% sequential increase and 47% year-over-year growth, while data center revenue rose 12% sequentially and 55% from the prior-year period to $2.5 billion.

Cloud customers remain the primary contributor to data center revenue and capacity shipments. Seagate is expanding shipments of its Mozaic HAMR-based drives to address increasing cloud demand. During the third quarter, the company shipped Mozaic drives for revenue to 75% of the leading global cloud customers and expects to complete qualification with the remaining two customers during the current quarter. Enterprise OEM data center revenue also increased sequentially, reflecting broader deployment of AI applications and renewed demand for hybrid and tiered storage architectures.

Management highlighted that the company has recorded 10 consecutive quarters of revenue growth from cloud customers. Nearly all major cloud and hyperscale customers have entered exabyte-scale supply agreements with Seagate, while nearline capacity is almost fully allocated through calendar 2027. The company is also finalizing build-to-order contracts through fiscal 2027, providing defined product configurations and pricing, while strategic planning discussions are already extending into calendar 2028 and beyond.

For the fourth quarter, Seagate expects revenue of approximately $3.45 billion, plus or minus $100 million. The company projects non-GAAP operating expenses of about $295 million, with an operating margin in the lower 40% range. Management stated that strengthening exabyte demand, continued Mozaic product qualification and pricing execution support confidence in delivering quarterly revenue growth and margin expansion through fiscal 2027.

Taking a Look at STX’s Competitors

Western Digital Corporation WDC continues to strengthen its data center business by delivering high-capacity HDDs that offer strong reliability, scalability, energy efficiency and low total cost of ownership for AI- and cloud-driven storage demand. The company shipped 222 exabytes during the quarter, up 34% year over year, including 4.1 million next-generation ePMR drives totaling 118 exabytes. It is advancing ePMR, HAMR and UltraSMR technologies, with 40TB UltraSMR ePMR drives under qualification at two hyperscalers and volume production targeted in the second half of fiscal 2026. Firm purchase orders from its top seven customers are secured through 2026, supported by multi-year agreements extending into 2027 and 2028.

NetApp NTAP is benefiting from strong demand for data center storage driven by enterprise modernization and AI workloads. Fiscal 2026 all-flash revenue increased 11% year over year to $4.2 billion, while fourth-quarter all-flash revenue rose 18% to $1.2 billion, supported by demand across high-performance flash, capacity flash and block-optimized storage. The company is expanding its AI-focused portfolio with AFX and the AI Data Engine and reported more than 1,100 AI and data preparation wins during fiscal 2026. Management expects enterprise AI activity to increase in fiscal 2027, supporting continued demand for performance-oriented storage platforms across on-premises and cloud environments.

STX’s Price Performance, Valuation & Estimates

In the past year, STX’s shares have skyrocketed 517.4%, outperforming the Computer Integrated Systems industry’s growth of 234.1%.

In terms of forward price/earnings, STX’s shares are trading at 64.41X, higher than the industry’s 13.93X.

STX is currently witnessing an uptrend in estimate revisions. Earnings estimates for fiscal 2026 have increased 0.3% to $14.93 over the past 60 days, while the same for fiscal 2027 has gone up 5.2% to $27.72.

STX currently boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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