Seagate designs and manufactures hard disk drives, mainly high-capacity nearline drives for cloud and hyperscale data centers. It also sells drives into edge/IoT and consumer markets. [S2][S3]
Sources through 2026-08-04 · Report dated 2026-09-14
Business details
How it makes money
Revenue comes from selling drives directly to OEMs, hyperscalers, distributors, and retailers. Build-to-order supply agreements set product configurations, volumes, and pricing. [S1][S8]
What drives results
Exabyte shipment growth, driven by AI and cloud data, is the primary revenue driver. Nearline capacity is nearly fully allocated through 2027. [S2][S8]
Analysis: Average selling price per terabyte and mix toward higher-capacity drives determine revenue per exabyte and gross margin. [S6][S12]
Analysis: Gross margin depends on pricing power, supported by supply discipline and HAMR technology, but faces pressure from hyperscaler customers. [S4][S8]
Key dependencies
Hyperscaler capital expenditure decisions determine demand. Cloud customers are about 90% of exabyte shipments; one customer was 14% of FY2026 revenue. [S4][S16]
Rare earth elements and specialised materials for HDD media and heads face supply constraints and geopolitical risk. [S16]
Seagate's AI-driven revenue and margin surge may be a structural shift or a cyclical peak; the stock at $830 already prices sustained 45%+ gross margins and years of high growth.
Gross margin compression if hyperscaler customers regain leverage on contract renewals and competition from Western Digital's HAMR erodes Seagate's technology premium.
Seagate sells high-capacity nearline HDDs mainly to cloud and hyperscale customers; OEMs were 80% of FY2025 revenue and nearline is ~88% of exabytes. Revenue is transactional per drive, driven by exabyte shipments, pricing per terabyte, and mix.
The market capitalisation near $190bn implies free cash flow must grow roughly fivefold from FY2026's $3.1bn within a decade, with gross margins staying near 45%+.
Base case intrinsic value is about $420 per share, below the $830 price. The business is strong but the valuation offers no margin of safety; expected returns are roughly -5% to +5% annually.
Present-value estimates at the analysis date using a 5-year DCF forecast plus terminal value; WACC 11%, terminal growth 2.5%, tax 22%, diluted shares 229m, SBC treated as expense where verifiable.
Scenarios are conditional estimates, not promised returns.
Bear · USD 400.0000
AI capex decelerates; customers regain pricing leverage; gross margin falls to ~35%; free cash flow falls to $1.5-2bn; value around $400.
Stock-based compensation for FY2026 could not be verified from a primary filing. Credit ratings were not verified from a primary source. The full FY2026 10-K document text was not available; segment-level detail for FY2026 relies on earnings materials and third-party summaries rather than the complete filing.