Seagate Posts Record Quarter on Data Center Surge
Storage giant beats estimates with $3.1B revenue and $4.10 EPS. Raises annual growth target to 20% as HAMR technology gains traction.
Seagate just delivered one of the best quarters in its history.
The storage company reported Q3 2026 results that blew past estimates on every metric that matters. Revenue hit $3.1 billion—up 10% sequentially and 44% year-over-year. Non-GAAP EPS came in at $4.10 versus the $3.48 consensus, an 18% beat.
This wasn't a one-time surprise. Management raised the company's annual revenue growth target to at least 20%, citing accelerating demand visibility through 2027.
The Numbers
| Metric | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
| Revenue | $3.1B | $2.15B | +44% |
| Non-GAAP Gross Margin | 47% | 40% | +700 bps |
| Non-GAAP Operating Margin | 37.5% | 28% | +950 bps |
| EPS | $4.10 | $2.55 | +61% |
| Free Cash Flow | ~$1B | $450M | +122% |
Seagate generated close to $1 billion in free cash flow—one of its highest levels ever. The company also retired $641 million in debt, including over $600 million of exchangeable senior notes due 2028.
What's Driving Growth
Two words: nearline drives.
Enterprise data centers can't get enough high-capacity hard drives for cloud storage, AI training data, and backup systems. Seagate's 20TB+ drives are sold out through 2027 based on contract visibility, according to management.
The company's HAMR (heat-assisted magnetic recording) technology is finally hitting volume production. HAMR allows significantly higher areal density on disk platters, enabling 30TB+ drives that competitors can't match.
Executives said Mozaic 4 drives—Seagate's HAMR platform—are ramping faster than expected. Major cloud customers are qualifying the technology, and HAMR exabyte output is expected to become dominant by late 2026.
Margin Expansion
The margin improvement is as impressive as the revenue growth.
Gross margins expanded 180 basis points sequentially to 47%—a record for the company. Operating margins hit 37.5%, up nearly 10 percentage points from a year ago.
This reflects operating leverage and a favorable product mix. High-capacity enterprise drives carry better margins than consumer products. As data center demand dominates the revenue mix, profitability improves structurally.
The Bull Case
Seagate now trades at roughly 10x forward earnings—cheap for a company growing revenue 40%+ annually. The skeptics argue this is a cyclical peak and storage demand will normalize.
Management's counter: AI is structural. Training large language models requires storing massive datasets. Every cloud provider is building out capacity as fast as possible. And HAMR gives Seagate a technology lead that Western Digital hasn't matched.
The company also benefits from industry consolidation. The HDD market is essentially a duopoly between Seagate and Western Digital. Pricing discipline has improved, and neither company seems interested in a margin-destroying price war.
Risk Factors
The bear case isn't complicated: SSDs keep getting cheaper. Flash storage prices have declined roughly 30% over the past year, narrowing the cost gap with hard drives.
For nearline enterprise storage, HDDs still win on price per gigabyte by a wide margin. But that margin shrinks every year. At some point, the convenience advantages of SSDs—speed, power efficiency, no moving parts—could outweigh the cost premium.
Seagate is betting HAMR keeps HDDs competitive by enabling capacity increases that flash can't match. It's a reasonable bet, but it's a bet.
The other risk is demand normalization. Hyperscalers have been building out capacity aggressively, partly driven by AI enthusiasm. If that spending moderates, Seagate's growth rate falls with it.
Technical Setup
Shares gained 4% following the report, adding to strong year-to-date performance. The stock has roughly doubled from its 2024 lows.
The next catalyst is Diamondback Energy's report on May 5. Energy and tech are the two sectors driving market gains this year, and positive earnings from either tend to lift the broader tape.
For Seagate specifically, the question is whether this quarter's beat is already priced in. At 10x earnings with 20%+ growth guidance, the valuation isn't stretched by tech standards. But storage stocks rarely get premium multiples.
The setup favors holding for investors who bought lower. For new positions, waiting for a pullback makes sense—the easy money has been made.
Related: Five9's AI revenue surge, big tech AI capex trends, and more Earnings coverage.