Seagate Technology Holdings plc’s (STX Quick QuoteSTX - Free Report) stock closed the last trading session at $102.13, 10% below its 52-week high of $113.57, reached on July 24, 2024.

Over the past six months, the stock has appreciated 19.6%, outperforming the S&P 500 composite and the sub-industry’s growth of 9.3% and 8.9%, respectively. It has also outperformed its peers. Over the same time frame, NetApp (NTAP Quick QuoteNTAP - Free Report) and Western Digital (WDC Quick QuoteWDC - Free Report) have posted gains of 15.3% and 9.6%, respectively, while Pure Storage (PSTG Quick QuotePSTG - Free Report) shares have lost 3.3%.

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Solid financial performance is buoying the stock’s trajectory. The company is experiencing increasing demand for its mass capacity solutions. STX’s earnings beat estimates in three of the last four quarters, delivering an average surprise of 80.9%.

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Reflecting the positive sentiment around STX, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next quarters by 38.8% and 33.3% to $1.43 and $1.80 per share, respectively.

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Momentum in Mass Capacity Demand Makes us Bullish on STX

Momentum in mass capacity solutions attributed to stronger nearline cloud demand remains a tailwind for Seagate. Strengthening the global cloud demand environment is fueling demand for nearline capacity demand. In the last reported quarter, nearline cloud revenues more than doubled year over year, owing to higher traditional cloud computing workloads and new AI deployments. STX expects this momentum to continue in fiscal 2025.

Overall mass capacity revenues surged 46% year over year to $1.437 billion in the last reported quarter. Sequentially, mass capacity revenues were up 22%.

Mass capacity exabyte shipments represent more than 90% of total exabyte shipments. The company shipped 103.9 exabytes for the mass-capacity storage market (including nearline, video and image applications and network-attached storage). This recorded a year-over-year increase of 38% in exabyte shipments and 17% sequentially.

The improving metrics signify that things are probably looking brighter for STX after a period of lackluster performance. Driven by incremental improvements in mass capacity demand, management anticipates first-quarter fiscal 2025 revenues to be $2.10 billion (+/- $150 million).
 

STX’s Mozaic Platform: Another Catalyst

Seagate’s launch of the Mozaic 3+ hard drive platform, featuring Heat-Assisted Magnetic Recording (HAMR) technology, is also expected to aid in capturing a greater share of the mass capacity storage solutions market.

Seagate expects HAMR to aid in exploiting megatrends like AI and machine learning, which will drive long-term demand for cost-effective mass-capacity storage solutions. The company has completed multiple qualifications for its 24TB CMR / 28TB SMR drives. It expects to begin volume shipments in the first quarter of fiscal 2025.

It shipped a small volume of Mozaic 3+ for revenues to non-cloud customers in the fiscal fourth quarter. It anticipates completing the qualification with the lead CSP customer and starting multiple qualifications with the cloud customers of the United States and China in the current quarter. It anticipates a larger volume ramp from mid-calendar 2025.
 

STX’s Improving Margin Performance & Solid Outlook

Higher exabyte demand trends, ongoing price adjustments and continued cost containment efforts are driving the margin performance.

In the last reported quarter, non-GAAP gross margin increased to 30.9% from 19.5% in the prior-year quarter. Non-GAAP income from operations totaled $327 million, up from $55 million a year ago. Non-GAAP operating margin increased to 17.3% from 3.4% in the year-earlier quarter.

Going ahead, STX expects gross margin is expected to benefit from a higher mix of mass capacity revenues and ongoing pricing actions. At the midpoint of the revenue guidance, management expects the non-GAAP operating margin to grow in the high-teens percentage range of revenues. The non-GAAP operating expenses are expected to be $270 million.
 

STX’s Strong Technical Indicators & Attractive Valuation

Technical indicators are also supportive of STX’s strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and confidence in its growth prospects.

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Seagate presents a compelling investment opportunity with its attractive forward 12-month price-to-sales ratio of 2.2X, significantly lower than the industry average of 6.3X observed over the past three years. Its forward 12-month price-to-sales ratio positions Seagate as a value-driven choice with significant upside potential.

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To Buy or Not to Buy STX?

Increasing demand for mass capacity solutions, strategic initiatives, attractive valuation and positive estimate revisions bode well for STX. Given the recent pullback from its 52-week high, investors have an opportunity to invest in this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apart from a favorable rank, STX has a Growth Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or 2 (Buy) and a Growth Score of A or B offer solid investment opportunities.

The Zacks Consensus Estimate for fiscal 2025 implies a 42.8% year-over-year increase in sales and a 474% rise in EPS, signaling strong growth potential ahead.