Seagate Technology Sees AI Storage Demand Fueling HAMR Growth and Margin Gains

Key Points

• AI infrastructure is boosting storage demand across hyperscalers, enterprises and on-premises data centers, with applications such as video AI, robotics and autonomous driving driving long-term data growth.
• Seagate is expanding capacity primarily through higher-capacity drives and its HAMR technology. The company is selling 30TB HAMR drives broadly, 40TB drives to two major hyperscalers, expects a 50TB product around late 2027, and projects HAMR will represent 80%–90% of data-center volume within a few years.
• Strong orders, pricing and supply discipline are supporting continued revenue and margin gains; Seagate reported incremental gross margins above 70% recently and plans to prioritize debt reduction before increasing share repurchases and potentially dividends.

Seagate Technology NASDAQ: STX CFO Gianluca Romano said demand for mass storage is being supported by the early stages of artificial intelligence infrastructure investment, with growth extending from large public-cloud customers to enterprise original equipment manufacturers and on-premises data centers.

Speaking at the Goldman Sachs Communacopia + Technology Conference, Romano said customer capital-expenditure trends indicate that AI investment remains in an early phase. He pointed to expanding data requirements from video AI, robotics, autonomous driving and AI-enabled quality-control applications as drivers of long-term storage demand.

“Everything is based on data,” Romano said. “When you have valuable data, the cost of storage is minimal comparing to recompute that data.”

Technology-Led Capacity Growth

Romano said Seagate’s strategy centers on increasing exabyte shipments through higher-capacity drives rather than significantly raising unit output. He said the hard-drive industry has maintained capital-expenditure and capacity discipline for the past two to three years, helping preserve a balance between supply and demand.

The company has previously discussed a mid-20% compound annual growth rate in exabytes over a three- to four-year period. Romano said investors should also consider absolute exabyte growth, rather than focusing solely on percentage growth as the company’s shipment base expands.

He said a transition from a 30-terabyte drive to a 40-terabyte drive can add 33% more capacity per unit. Seagate’s technology and pricing strategy over the past three years have helped it nearly triple gross margin, according to Romano, while storage represents only a low- to mid-single-digit percentage of customers’ capital expenditures.

Romano added that purchase orders currently in place for Seagate’s fiscal year support the company’s expectation for revenue and margin improvement in every quarter of the year.

HAMR Ramp Advances

Romano highlighted Seagate’s heat-assisted magnetic recording, or HAMR, technology as a key element of its capacity expansion. He said Seagate is selling 30-terabyte HAMR drives to all major hyperscale customers and is selling 40-terabyte drives to its two largest hyperscale customers while qualifying the product with additional customers in the United States and Asia.

The company expects its 50-terabyte product to arrive around the end of calendar 2027, Romano said. He reiterated that Seagate expects HAMR to reach volume crossover by December and projected that HAMR could account for 80% to 90% of Seagate’s data-center volume within a couple of years.

“There is no way that the PMR technology can keep up with HAMR,” Romano said, referring to perpendicular magnetic recording technology. He said PMR will remain suitable for lower-capacity products, while HAMR is the preferred option for drives above 30 terabytes in public-cloud environments and eventually in on-premises data centers.

Seagate is also increasingly using internally produced lasers in HAMR products. Romano said integrating the laser with the drive head can provide cost, process and supply-chain benefits compared with purchasing external lasers. The company used external lasers for the first HAMR generation, then began using a mix of internally produced and external lasers in the second generation. Romano said the internal-laser mix should rise over time.

Demand, Pricing and Financial Priorities

Romano said Seagate does not currently see an oversupply scenario developing, citing purchase orders extending over the next four to five quarters. He acknowledged that data-center construction could be delayed by power constraints, building permits or component availability, but said demand in such a case would be deferred rather than disappear. He said disciplined capital spending and technology-driven capacity expansion would help Seagate manage a potential shift in the cycle.

Data-center products account for about 80% of Seagate’s revenue, while its edge and IoT business represents roughly 20%, according to Romano. The latter includes lower-capacity drives used in consumer, client and portions of video-surveillance markets. He said high NAND pricing has supported hard-drive pricing and helped keep volumes relatively consistent in those segments, though Seagate prioritizes allocation to its larger data-center customers.

On profitability, Romano said demand has become stronger than the company anticipated at its prior investor day, supporting higher pricing, gross margin, operating margin and earnings per share. He said Seagate’s incremental gross margin has exceeded 70% in recent quarters and that the current trend should continue over the next several quarters.

Regarding capital allocation, Romano said Seagate has reduced debt substantially over the past one to two years and is conducting share repurchases this quarter. He expects the company may repurchase one remaining high-interest-rate note next quarter. Beginning in calendar 2027, Romano said Seagate expects to have more free cash flow available for buybacks after completing debt reduction efforts. The company also reviews potential dividend increases around October and November, though Romano characterized share repurchases as the larger component of shareholder returns.

About Seagate Technology (NASDAQ:STX)

Seagate Technology Holdings plc is a data storage technology company that develops and manufactures mass-capacity storage solutions for businesses and consumers. Its product portfolio is centered on hard disk drives (HDDs), which are used in cloud data centers, enterprise systems, network-attached storage, video and imaging applications, and personal computing.

The company also offers solid-state drives (SSDs), external storage products, storage systems, and related data-management and recovery services.

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