On Wednesday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Seagate Technology (NASDAQ:STX), increasing the stock's price target from $107.00 to $115.00, while retaining an Outperform rating. The firm's analysts highlighted Seagate's robust performance in the December quarter, with revenue and earnings per share surpassing consensus estimates at $2.33 billion and $2.03 respectively, against anticipated figures of $2.31 billion and $1.87.
The forecast for the March quarter was set at $2.10 billion in revenue and $1.70 earnings per share, aligning closely with consensus projections of $2.19 billion and $1.68 respectively. Analysts noted a significant improvement in gross margins, which increased by 220 basis points quarter-over-quarter to 35.5%. This margin expansion is seen as a positive development for Western Digital Corporation (NASDAQ:WDC) as well.
Several key factors were cited as driving forces behind Seagate's success. Firstly, nearline cloud revenue experienced a substantial year-over-year increase, with demand from enterprise and original equipment manufacturers (OEMs) remaining robust. This demand is fueled by escalating storage requirements for artificial intelligence (AI) applications.
Secondly, seasonal demand for hard disk drives (HDDs) in China is on the rise, as customers expand their cloud-based solutions. Additionally, Seagate's Heat-Assisted Magnetic Recording (HAMR) technology is beginning to reach customers, with drives offering up to 36TB to meet the growing storage needs driven by AI.
Furthermore, the company's Mozaic 3+ technology is contributing to improved areal density and has commenced ramping up at its first cloud service provider customers, despite supply constraints. Mizuho analysts reiterated their positive stance, expecting HAMR technology to bolster Seagate's margins over the long term. They also addressed the $200 million headwind anticipated for the March quarter, attributing it to production challenges rather than a lack of demand.
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