Seagate Technology (STX)

Data storage manufacturer Seagate (NASDAQ:STX) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 21.3% year on year to $2.63 billion. Guidance for next quarter’s revenue was better than expected at $2.7 billion at the midpoint, 1.8% above analysts’ estimates. Its non-GAAP profit of $2.61 per share was 8.8% above analysts’ consensus estimates.

Company Overview

The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.

Seagates peers and competitors include Western Digital (NASDAQ:WDC), SK Hynix (KOSI:000660), and Samsung (KOSI:005930).

The global memory chip market has become concentrated due to the highly commoditized nature of these semiconductors. Despite the market consolidation, DRAM and NAND are subject to wide pricing swings as supply and demand ebbs and flows. This plays itself out in the business models of memory producers, where the large, fixed cost bases required to produce memory chips in volume can become very profitable during times of rising prices due to high demand and tight supply but also can result in periods of low profitability when more supply is brought online or demand drops. Read More. There are two main types of memory chips: dynamic random access memory (DRAM) and Flash memory (NAND). In any electronic device where a processor or a graphics chip is conducting a task using data, it needs to read the data from where it is stored, known as memory. Smartphones, PCs, and data centers account for more than two thirds of memory demand. DRAM is “volatile” memory, it is a semiconductor that requires an electric charge to retain data – it is the type of memory commonly used in PCs. The advantages of DRAM are the speed at which a CPU/GPU can access the data and its long useful life. Unfortunately, “volatile” means it only can hold data temporarily when it is powered. By comparison, flash memory or NAND is “non-volatile” memory, which means that it saves data when power is removed, making it commonly used in almost every mobile device, along with USB flash drives. Its smaller form factor and greater storage capacity has made NAND-powered solid state drives (SSDs) the long term replacement for the original computing storage device, the hard disk drive.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Seagate Technology’s demand was weak and its revenue declined by 1.4% per year. This was below our standards and is a tough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Seagate Technology’s annualized revenue growth of 18.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Seagate Technology reported robust year-on-year revenue growth of 21.3%, and its $2.63 billion of revenue topped Wall Street estimates by 3%. Beyond the beat, this marks 6 straight quarters of growth, showing that the current upcycle has had a good run - a typical upcycle usually lasts 8-10 quarters. Company management is currently guiding for a 16.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 15.2% over the next 12 months, a deceleration versus the last two years. Still, this projection is noteworthy and suggests the market is baking in success for its products and services.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Seagate Technology’s DIO came in at 86, which is 10 days above its five-year average, suggesting that the company’s inventory levels are higher than what we’ve seen in the past.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Seagate Technology’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 33.5% gross margin over the last two years. Said differently, Seagate Technology had to pay a chunky $66.49 to its suppliers for every $100 in revenue.

Seagate Technology’s gross profit margin came in at 39.4% this quarter, up 6.5 percentage points year on year. Seagate Technology’s full-year margin has also been trending up over the past 12 months, increasing by 8.1 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Seagate Technology has managed its cost base well over the last two years. It demonstrated solid profitability for a semiconductor business, producing an average operating margin of 18.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Seagate Technology’s operating margin rose by 6.9 percentage points over the last five years, showing its efficiency has improved.

In Q3, Seagate Technology generated an operating margin profit margin of 26.4%, up 7.8 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Seagate Technology’s EPS grew at a decent 13.4% compounded annual growth rate over the last five years, higher than its 1.4% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

Diving into the nuances of Seagate Technology’s earnings can give us a better understanding of its performance. As we mentioned earlier, Seagate Technology’s operating margin expanded by 6.9 percentage points over the last five years. On top of that, its share count shrank by 12.7%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Seagate Technology reported adjusted EPS of $2.61, up from $1.58 in the same quarter last year. This print beat analysts’ estimates by 8.8%. Over the next 12 months, Wall Street expects Seagate Technology’s full-year EPS of $9.13 to grow 25.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Seagate Technology has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 11%, subpar for a semiconductor business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Seagate Technology to make large cash investments in working capital and capital expenditures.

Taking a step back, an encouraging sign is that Seagate Technology’s margin expanded by 1.2 percentage points over the last five years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Seagate Technology’s free cash flow clocked in at $427 million in Q3, equivalent to a 16.2% margin. This result was good as its margin was 15 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Seagate Technology hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 28.1%, higher than most semiconductor businesses.

Seagate Technology reported $1.11 billion of cash and $4.99 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.70 billion of EBITDA over the last 12 months, we view Seagate Technology’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $218.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Seagate Technology beat analysts’ EPS expectations this quarter. We were also excited its adjusted operating income outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 5.4% to $234.75 immediately following the results.

Updated: December 4, 2025 at 9:21 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are a lot of things to like about Seagate Technology. Although its revenue has declined over the last five years, its growth over the next 12 months is expected to be higher. And while Seagate Technology’s low gross margins indicate some combination of pricing pressures or rising production costs, its expanding operating margin shows the business has become more efficient. On top of that, its solid ROIC suggests it has grown profitably in the past.

Seagate Technology’s P/E ratio based on the next 12 months is 21.2x. When scanning the semiconductor space, Seagate Technology trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $289.24 on the company (compared to the current share price of $264.81), implying they see 9.2% upside in buying Seagate Technology in the short term.