Key Takeaways
- Seagate Technology is a top AI stock pick, with shares rising 225% in the past year
- The company benefits from strong data center storage demand, driven by AI applications
- Seagate’s production capacity for 2026 is close to sold out, with favorable pricing environment and increasing demand
- The company’s earnings are expected to grow 42% in the current fiscal year, with double-digit percentage increases over the next couple of years
- Seagate’s stock is trading at 25 times forward earnings, with potential for premium valuation due to above-average growth
Introduction to Seagate Technology
Seagate Technology is a manufacturer of digital storage devices, including hard-disk drives (HDDs) and solid-state drives (SSDs). The company has been benefiting from the artificial intelligence (AI) boom, with shares rising by 225% in the past year. This is a significant increase, especially when compared to Nvidia, a top AI stock that rose by 39% in 2025. As Seagate’s CEO William Mosley noted, "the longer term agreements that we have with our global data center customers provide clear visibility through calendar 2027, reinforcing our view that these favorable demand conditions will persist."
Data Center Storage Demand
Seagate gets 80% of its revenue from selling data center storage products, which are deployed by cloud computing companies and enterprises. The demand for these products is driven by the growing usage of AI applications, which require large amounts of data storage. According to market research firm IDC, global data generation could increase by more than fivefold between 2020 and 2028, driven by the growing usage of AI applications. This is expected to lead to a significant increase in demand for data center storage, with Seagate’s addressable market in this segment expected to grow from $13 billion in 2024 to around $23 billion by the end of the forecast period.
Favorable Pricing Environment
Seagate is also benefiting from a favorable pricing environment, with its production capacity for 2026 close to sold out. The memory shortage caused by robust AI-driven demand is boosting prices of storage chips, with the contract price of HDDs jumping an estimated 4% in the fourth quarter. As Tom’s Hardware reported, this trend is expected to continue in the new year, paving the way for more price hikes. Seagate’s CEO noted that "AI-driven demand for HDD storage is so strong that our production capacity for 2026 is close to sold out." This is a significant advantage for the company, as it allows them to maintain high prices and increase revenue.
Financial Performance
Seagate’s financial performance has been impressive, with a 21% year-over-year increase in revenue in the first quarter of its fiscal 2026. The company’s non-GAAP operating margin jumped by almost 9 percentage points to 29%, resulting in a 65% increase in earnings to $2.61 per share. Analysts are forecasting a 42% increase in Seagate’s earnings in the current fiscal year, followed by healthy double-digit percentage increases over the next couple of years. As the company’s financials continue to improve, it is likely that the stock will continue to rise.
Valuation
Seagate’s stock is trading at 25 times forward earnings, which is in line with the tech-heavy Nasdaq-100 index’s forward earnings multiple. However, the pace of Seagate’s earnings growth suggests that it could be trading at a premium to the index in the future. If Seagate achieves $15.15 per share in earnings in its next fiscal year and trades at even 30 times earnings at that time, its stock price could hit $455. This suggests potential gains of 48% from current levels, indicating that this AI stock could deliver impressive gains over the next year and a half. As the company continues to benefit from strong data center storage demand and a favorable pricing environment, it is likely that the stock will continue to rise.
https://www.fool.com/investing/2026/01/12/this-artificial-intelligence-ai-stock-quietly-outp/