Story Stocks^®

Seagate Tech (STX +9%) is making a strong move following upside Q3 (Mar) results last night. The data storage giant reported its fourth consecutive double-digit EPS beat. Revenue jumped 30.5% yr/yr but was down 7% sequentially to $2.16 bln, a bit better than expected. What really stood out was robust guidance for Q4 (Jun). There had been worries that macro concerns might be pressuring clients' decision making, but this guidance eases those concerns.

• STX currently forecasts minimal direct impact from tariff policies. However, it will be monitoring for secondary impacts, including changes in customer demand. As of now, current demand indicators remain intact, particularly among global cloud customers. In MarQ, cloud nearline revenue and exabytes were up nearly 10% sequentially and almost double from a year ago amid a very tight supply environment.
• The growing demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing build-out of data center infrastructure to support AI.
• The company explained that hard drives store close to 90% of the bits in large-scale data center deployments. For example, STX noted that Google recently unveiled details about their foundational Colossus storage system, highlighting the use of SSDs for fast data access while depending on hard drives for mass storage and data retention due to their scalability and cost benefits. This hybrid storage strategy is particularly vital for AI workloads that require access to massive data sets.
• Looking ahead, STX sees nearline exabyte demand looking strong through calendar 2025. Importantly, STX also has visibility of demand with several customers into the first half of calendar 2026. Seagate feels it's in a strong position to address the favorable demand outlook as it ramps shipments of its high capacity drives.

We think the main reason the stock is higher today is the robust upside guidance. Given the macro fears about tariffs, we think investors would have been happy with in-line guidance. However, the sharp upside was a pleasant surprise. We also think good guidance from its peer Western Digital (WDC +4.5%) was encouraging as well. The concern on tariffs was not so much higher costs for Seagate, but rather that its clients might slow orders. However, it sounds like demand looks good, fueled by the AI infrastructure buildout.