Story Stocks®
Updated: 23-Oct-24 11:05 ET
Seagate Tech seeing sizable losses as guidance fails to live up to loftier expectations (STX)
Following a rough stretch in 2022 and 2023 in which an inventory glut, combined with sluggish demand for PCs and laptops, caused hard disk drive maker Seagate Technology's (STX) revenue to decline for eight consecutive quarters, the company's fortunes have brightened considerably this year. Bolstered by strengthening demand from cloud customers and a more favorable supply/demand environment across the industry, STX delivered back-to-back top and bottom-line beats as 1Q25 revenue growth surged to over 49% -- its highest growth in more than five years.
However, with shares are already up by 32% on a year-to-date basis, STX was facing a high bar to hurdle ahead of last night's print. Coming off a 4Q24 beat-and-raise performance in which STX guided 1Q25 EPS and revenue well above expectations, the company's inline EPS and revenue guidance for 2Q25 isn't being viewed as good enough, prompting a sell-the-news reaction. Based on STX's bullish commentary during the earnings call, it seems that its more conservative guidance doesn't sync with the company's high expectations for this fiscal year.
However, with shares are already up by 32% on a year-to-date basis, STX was facing a high bar to hurdle ahead of last night's print. Coming off a 4Q24 beat-and-raise performance in which STX guided 1Q25 EPS and revenue well above expectations, the company's inline EPS and revenue guidance for 2Q25 isn't being viewed as good enough, prompting a sell-the-news reaction. Based on STX's bullish commentary during the earnings call, it seems that its more conservative guidance doesn't sync with the company's high expectations for this fiscal year.
- For instance, STX is especially excited about its new HAMR (heat-assisted magnetic recording) storage products that enable HDDs to store far more data, lowering the cost per terabyte, making them ideal for new datacenters that are running AI technologies. The qualification process is ongoing across several global cloud and enterprise customers and STX expects HAMR shipments and revenue to ramp in mid-CY25.
- The company is also anticipating further margin expansion opportunities this fiscal year, driven by the ramp up of its high-capacity nearline drives, the growth of its Mozaic-based HAMR products, and healthy supply/demand dynamics. In Q1, non-GAAP gross margin surged to its highest level in more than a decade to 33.3%, compared to 19.8% in the year-earlier period.
- STX's mass capacity HDDs, especially nearline storage HDDs that are often used for bulk storage purposes in data centers, are seeing strong demand and that trend is expected to continue in FY25. As datacenter infrastructure continues to be built out due to the massive amount of data that's supporting AI, cloud companies like Microsoft (MSFT), Google (GOOG), and Amazon Web Services (AMZN) will need to heavily invest in storage.
The main takeaway is that STX is succumbing to a sell-the-news reaction today as its inline Q2 guidance failed to live up to the market's lofty expectations. Still, the overall outlook remains bullish for STX with data growing faster than the world's ability to store it, to borrow a phrase from the company's website.
