$ AAPL

$ ABBV

$ ABNB

$ ACGL

$ ADI

$ ADM

$ ADP

$ ADSK

$ AEE

$ AEP

$ AES

$ AFL

$ AIG

$ AIZ

$ AJG

$ AKAM

$ ALB

$ ALGN

$ ALL

$ AMAT

$ AMCR

$ AMD

$ AME

$ AMGN

$ AMP

$ AMT

$ AMZN

$ ANET

$ AOS

$ APA

$ APD

$ APO

$ APTV

$ ARE

$ ATO

$ AVB

$ AWK

$ AXON

$ BA

$ BALL

$ BAX

$ BBY

$ BDX

$ BEN

$ BG

$ BIIB

$ BKNG

$ BLDR

$ BMY

$ BR

$ BRO

$ BXP

$ CAG

$ CAH

$ CARR

$ CAT

$ CBOE

$ CBRE

$ CCL

$ CDNS

$ CDW

$ CEG

$ CF

$ CHD

$ CHRW

$ CI

$ CINF

$ CL

$ CLX

$ CMCSA

$ CMG

$ CMI

$ CMS

$ COIN

$ COO

$ COP

$ COR

$ CPAY

$ CPT

$ CRL

$ CRWD

$ CSCO

$ CTRA

$ CTSH

$ CTVA

$ CVS

$ CVX

$ CZR

$ DAL

$ DASH

$ DAY

$ DD

$ DDOG

$ DE

$ DELL

$ DG

$ DGX

$ DIS

$ DOC

Seagate (STX) posted strong Q4 revenue and margin growth on AI/cloud demand, but a GAAP EPS miss and capacity constraints highlight underlying risks despite bullish guidance.

# Seagate Technology Delivers Robust Q4 FY2025 Beat on Cloud & AI Demand, But GAAP EPS Misses Signal Underlying Caution

---

## Executive Summary

- **Seagate Technology (STX) posted a strong Q4 FY2025, with revenue of $2.44B (+30% YoY) and non-GAAP EPS of $2.59, both beating consensus estimates.** However, GAAP EPS of $2.24 missed expectations due to higher tax impacts and share dilution, highlighting a divergence between headline and bottom-line results.
- **Margins expanded sharply,** with GAAP gross margin at 37.4% (up from 31.8% YoY) and operating margin at 23.2%, reflecting disciplined cost control and a favorable product mix, particularly from high-margin cloud and AI storage solutions.
- **Management struck a bullish tone,** emphasizing robust demand, effective cost management, and confidence in continued growth. However, they acknowledged capacity constraints and higher tax rates, injecting a note of caution into the outlook.
- **Q1 FY2026 guidance was above consensus,** with revenue expected at $2.5B ± $150M and non-GAAP EPS at $2.30 ± $0.20, underpinned by ongoing AI and edge storage demand and the successful ramp of HAMR products.
- **Risks include operational capacity constraints, rising short interest, and underlying GAAP profitability pressures.** While the market is likely to react positively to the headline beat and margin expansion, near-term volatility is possible as investors digest the mixed signals.

---

## Performance Snapshot

| Metric         | Reported   | Consensus | Surprise | YoY Change |
|----------------|------------|-----------|----------|------------|
| Revenue        | $2.44B     | $2.32B    | +$120M   | +30%       |
| Non-GAAP EPS   | $2.59      | $2.40     | +$0.19   | +35%       |
| GAAP EPS       | $2.24      | $2.35     | -$0.11   | +28%       |
| GAAP Gross Margin | 37.4%   | 34.0%     | +340bps  | +560bps    |
| GAAP Op Margin | 23.2%      | 20.0%     | +320bps  | +520bps    |
| Cloud/AI Revenue | Not disclosed | —     | —        | "Robust growth" |

---

## Earnings Quality

Seagate Technology’s Q4 revenue growth was driven by **sustained demand in cloud and AI storage**, as well as the successful ramp of next-generation HAMR products. The company’s **margin expansion**—with GAAP gross margin up 560bps YoY—reflects a favorable product mix and **disciplined cost control** across COGS and SG&A. Notably, restructuring expenses and debt levels were reduced, supporting profitability. However, the **gap between non-GAAP and GAAP EPS** (due to higher tax rates and share dilution) signals that some of the headline strength is not fully translating to bottom-line GAAP results.

---

## Management Commentary & Guidance

Management’s tone on the earnings call was **confident and bullish**, citing strong secular demand drivers in AI and edge storage, and highlighting operational execution in cost management. However, they acknowledged **capacity constraints** and the impact of higher tax rates and share dilution, which could temper near-term upside. For Q1 FY2026, Seagate guided to **revenue of $2.5B ± $150M and non-GAAP EPS of $2.30 ± $0.20**, both above consensus, reflecting confidence in continued demand and operational execution.

---

## Key Risks

- **Capacity constraints** could limit Seagate’s ability to fully capitalize on robust demand, especially in high-growth AI and cloud segments.
- **Rising short interest and bearish options sentiment** suggest some investors are skeptical of the sustainability of recent gains.
- **GAAP profitability pressures** from higher tax rates and share dilution may persist, potentially weighing on future reported earnings.
- **Regulatory and macroeconomic risks** remain, though not currently acute.

---

## Expected Market Reaction

Given the **headline revenue and margin beat**, the market is likely to react **positively** in the near term. However, the **GAAP EPS miss** and rising short interest could introduce **volatility** as investors weigh the sustainability of the growth and the quality of earnings. Analyst commentary is expected to focus on the divergence between non-GAAP and GAAP results and the company’s ability to resolve capacity constraints.

---

## Final Takeaway

**Seagate Technology delivered a strong quarter, with clear top-line and margin outperformance driven by secular growth in AI and cloud storage.** However, the underlying GAAP EPS miss and capacity constraints warrant caution. The market may be **overlooking hidden GAAP weaknesses** and **overvaluing non-GAAP strength**. 

**Upcoming catalysts:**  
- Progress on capacity expansion and HAMR product ramp in Q1–Q2 FY2026  
- Updates on AI/cloud customer demand and margin trajectory in the next earnings call

Overall, Seagate Technology is well-positioned for growth, but investors should monitor execution risks and the sustainability of margin gains as the company navigates operational and market headwinds.

Seagate (STX): AI Growth Drives Beat, GAAP Risks Remain

Seagate Technology is set for strong Q4 FY25 earnings, driven by mass capacity demand, margin expansion, and structural balance sheet improvements, with upside potential if hyperscale/cloud trends persist.

# Seagate Technology: Riding the Mass Capacity Wave—Q4 FY25 Earnings Outlook and Scenario Analysis

## Executive Summary

We maintain a **Bullish** outlook for Seagate Technology’s upcoming Q4 FY25 earnings, driven by robust mass capacity demand and ongoing margin expansion. **Management’s revenue guidance of $2.25B–$2.55B and adjusted EPS of $2.20–$2.60** reflect confidence in both product ramp execution and cost discipline. Notably, **gross margin has expanded from 25.7% to 35.2% YoY**, underscoring improved pricing and product mix. The market may be underestimating the impact of Seagate’s **structural enhancements in working capital and debt management**, which could provide additional earnings leverage beyond operational improvements.

## Recent Trends Signal What’s Next

Seagate’s last two quarters highlight a clear inflection in both top-line growth and profitability. **Q3 FY25 revenue of $2.16B** rebounded sequentially, while **gross margin reached 35.2%**, up from 25.7% a year ago. **Operating margin improved to 18.1%** (from 10.2% YoY), and **adjusted EPS of $1.90** showed a strong recovery, despite missing consensus. The revenue mix remains heavily weighted toward mass capacity products (81%), a trend expected to persist as hyperscale and cloud demand accelerates.

### Quarterly Financial Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Adjusted EPS |
|--------------|--------------|------------------|----------------------|--------------|
| Q4 FY24      | 1.60         | 25.7             | 10.2                 | $0.55        |
| Q1 FY25      | 1.85         | 28.9             | 13.5                 | $1.10        |
| Q2 FY25      | 2.01         | 32.0             | 16.0                 | $1.55        |
| Q3 FY25      | 2.16         | 35.2             | 18.1                 | $1.90        |

**Trend:** Consistent sequential growth in revenue and margins, with EPS nearly quadrupling YoY.

## Management’s Forward Tone and Positioning

Management’s Q3 FY25 call struck a **“confident yet measured”** tone, emphasizing both opportunity and vigilance. Key statements include:  
- “We’re seeing a healthy supply/demand environment and expect profitable growth through 2025 and beyond.”  
- “We continue to navigate a dynamic macroeconomic environment, but our cost actions and product roadmap position us well.”  

Compared to prior quarters, the tone has shifted from defensive (focused on cost cuts and supply chain risks) to proactive, highlighting **technology ramp and structural improvements**. The explicit guidance for **further margin expansion** and a **$2.25B–$2.55B revenue range** signals management’s belief in both demand visibility and execution capability.

## KPI Trends & Upcoming Quarter Drivers

Three KPIs will be pivotal for Q4 FY25:

- **Mass Capacity Product Revenue:** 81% of Q3 revenue, up from 76% YoY, driven by hyperscale/cloud demand.
- **Operating Cash Flow:** $259M in Q3, up from $188M YoY, reflecting improved working capital and profitability.
- **Capex:** $60M in Q3, down 15% YoY, indicating disciplined investment focused on next-gen technology.

### KPI Movement Table

| KPI                        | Q3 FY24 | Q2 FY25 | Q3 FY25 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Mass Capacity Revenue (%)  | 76      | 79      | 81      | +5 pts     | +2 pts     |
| Operating Cash Flow ($M)   | 188     | 220     | 259     | +38%       | +18%       |
| Capex ($M)                 | 71      | 65      | 60      | -15%       | -8%        |

**Implications:**  
- **Mass capacity growth** will drive top-line upside if hyperscale demand persists.  
- **Cash flow strength** supports further margin expansion and potential buybacks.  
- **Capex discipline** ensures liquidity for opportunistic investments or debt reduction.

## Missed by the Street

A key overlooked signal is Seagate’s **structural working capital improvement and debt refinancing**. The recent **$400M senior notes issuance** and management’s reference to “structural enhancements” suggest a proactive approach to balance sheet optimization. This could **unlock incremental EPS leverage** if interest costs decline and liquidity is redeployed for growth or buybacks.  
> “We are making structural enhancements to our capital structure to support long-term growth.” (Q3 FY25 Earnings Call)

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | Adjusted EPS | Gross Margin (%) | Key Assumptions                                         |
|----------|--------------|--------------|------------------|---------------------------------------------------------|
| Bull     | 2.55         | 2.60         | ~36              | Strong mass capacity uptake, supply issues resolved      |
| Base     | 2.43         | 2.20–2.40    | ~35              | Steady demand, gradual HAMR ramp                        |
| Bear     | 2.25         | 2.20         | ~34              | Persistent supply constraints, macro volatility         |

**Most Likely:** The **Base case** is most probable, given current order trends, management’s measured optimism, and ongoing supply chain vigilance. Upside exists if HAMR adoption accelerates or supply constraints ease faster than expected.

## Appendix – Data Tables & Management Quotes

### Quarterly Financials Table

| Quarter      | Revenue ($B) | Adjusted EPS | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|--------------|------------------|----------------------|
| Q4 FY24      | 1.60         | $0.55        | 25.7             | 10.2                 |
| Q1 FY25      | 1.85         | $1.10        | 28.9             | 13.5                 |
| Q2 FY25      | 2.01         | $1.55        | 32.0             | 16.0                 |
| Q3 FY25      | 2.16         | $1.90        | 35.2             | 18.1                 |

### KPI Movement Table

| KPI                        | Q3 FY24 | Q2 FY25 | Q3 FY25 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Mass Capacity Revenue (%)  | 76      | 79      | 81      | +5 pts     | +2 pts     |
| Operating Cash Flow ($M)   | 188     | 220     | 259     | +38%       | +18%       |
| Capex ($M)                 | 71      | 65      | 60      | -15%       | -8%        |

### Key Management Quotes

1. **“We’re seeing a healthy supply/demand environment and expect profitable growth through 2025 and beyond.”**  
   – Q3 FY25 Earnings Call  
   *Implies confidence in demand visibility and margin expansion.*

2. **“We continue to navigate a dynamic macroeconomic environment, but our cost actions and product roadmap position us well.”**  
   – Q3 FY25 Earnings Call  
   *Signals ongoing vigilance and readiness to adapt to volatility.*

3. **“The mass capacity segment now represents over 80% of our revenue, reflecting strong hyperscale demand.”**  
   – Q3 FY25 Earnings Call  
   *Highlights the key revenue driver for the next quarter.*

4. **“We are making structural enhancements to our capital structure to support long-term growth.”**  
   – Q3 FY25 Earnings Call  
   *Points to balance sheet optimization as an underappreciated lever.*

5. **“We expect further margin expansion as next-generation products ramp.”**  
   – Q3 FY25 Earnings Call  
   *Directly supports the bullish margin outlook.*

6. **“Our operating cash flow improvement reflects both higher profitability and disciplined working capital management.”**  
   – Q3 FY25 Earnings Call  
   *Suggests sustainable cash generation for future quarters.*

7. **“We remain disciplined on capex, focusing investments on growth-enabling technologies.”**  
   – Q3 FY25 Earnings Call  
   *Indicates prudent capital allocation and risk management.*

---

**Bottom Line:** Seagate enters Q4 FY25 with strong momentum, disciplined execution, and underappreciated balance sheet improvements. The risk/reward skews positive, with the Base case scenario most likely, but upside if mass capacity demand and HAMR adoption accelerate.

Seagate (STX): Mass Capacity Drives Q4 FY25 Upside