Seagate Jumps 19% on AI Storage Boom, Record Margins
Data storage maker posts Q2 EPS of $3.11 vs $2.83 expected. Data center revenue surges 28% as AI drives exabyte-scale demand.
Seagate Technology delivered one of the best earnings reports in its history on Tuesday, sending shares up 19% to a record high.
The hard drive maker posted Q2 fiscal 2026 earnings of $3.11 per share against the $2.83 consensus—a beat that exceeded even the company's own guidance. Revenue jumped 21.5% year-over-year to $2.83 billion, driven by voracious demand for AI data storage.
This isn't a value trap story anymore. Seagate is riding the same AI wave that's lifting NVIDIA and the chip sector.
The Numbers
Adjusted earnings of $3.11 per share came in well above the $2.75 high end of management's prior guidance. Revenue of $2.83 billion beat the $2.71 billion estimate.
The standout metric: non-GAAP gross margin hit a record 42.2%, expanding 210 basis points sequentially and 670 basis points year-over-year. Operating margin reached 32%, up 880 basis points from the prior year.
Seagate shipped 165 exabytes of storage to the data center market alone, up 31% year-over-year. That's an almost incomprehensible amount of storage capacity—and demand keeps growing.
Why AI Changes Everything
Hard drives were supposed to be a dying business. SSDs were faster, more reliable, and dropping in price. The industry narrative for years was that spinning disk storage would fade into commodity irrelevance.
AI flipped that script.
Training and deploying large language models requires storing enormous datasets. The economics favor cheap, high-capacity storage over fast, expensive storage for many AI workloads. Seagate's nearline drives—the high-capacity hard drives used in data centers—are suddenly essential infrastructure.
"As AI applications amplify the creation and economic value of data, modern data centers increasingly need storage solutions that combine performance and cost-efficiency at exabyte-scale," management noted on the call.
The data center segment accounted for 79% of Seagate's revenue at $2.2 billion, up 28% year-over-year. That concentration in a single fast-growing market is both the opportunity and the risk.
Forward Guidance
Seagate guided Q3 revenue to $2.9 billion, plus or minus $100 million. The midpoint sits well above analyst estimates of $2.72 billion. Adjusted EPS guidance of $3.40, plus or minus $0.20, also topped the $2.86 consensus.
That's the kind of guidance that forces analysts to raise estimates immediately. Nine firms hiked their price targets following the report, with T.D. Cowen and Rosenblatt both moving to $500 from the $340-$370 range.
The stock touched $438.88 intraday before settling slightly lower. For perspective, Seagate traded below $100 as recently as late 2024.
The Broader Picture
Seagate's results fit a pattern we've seen across the AI supply chain. The ASML record orders from earlier this week told the same story on the semiconductor equipment side. Companies that supply AI infrastructure are seeing demand that exceeds their capacity to deliver.
The chip stock rally continues to have legs. Texas Instruments jumped nearly 10% on its own AI-adjacent results. Intel, Micron, and NVIDIA all moved higher alongside the sector.
For Seagate specifically, the question is sustainability. Data center buildouts are cyclical. Storage demand could normalize once the initial AI infrastructure wave passes. But for now, the company is generating record margins and accelerating revenue growth—exactly what you want to see in a turnaround story.
The dividend remains intact at $0.74 per quarter. With shares near all-time highs, management clearly sees the fundamental strength as durable rather than a one-time spike.