Seagate Technology Holdings plc (NASDAQ:STX) is down about 6% over the past five days. A report that Toshiba plans to boost its hard disk drive supply sent the stock down more than 10% in a single day.
Is this the time to buy? It’s worth analyzing this because major billionaires were piling into the stock earlier this year. STX is part of billionaire Stanley Druckenmiller’s top 10 AI picks and also among Stephen Mandel’s top 2 AI stock picks.
The Business
Seagate makes hard disk drives, the low-cost storage that data centers use to keep huge amounts of data. About 90% of the storage it ships goes to data centers. Its drives became more valuable as AI spread, because AI creates and keeps far more data. Revenue rose 48% last quarter from a year earlier, and 34% for the full fiscal year. Demand for hard drives is higher than supply, so Seagate has raised prices, and customers have signed long-term supply agreements.
Fidelity Dividend Growth explained in its investor letter why STX is a major beneficiary of the AI-led memory demand. Read their thesis here.
Bull Case
Seagate can keep growing because AI keeps creating more data that has to be stored. As AI moves from training models to answering questions and running tasks, it generates more data that companies keep for later use, and hard drives are the cheapest place to keep it. The long-term supply agreements give Seagate a clear view of sales for years, and demand that exceeds supply gives it pricing power.
Bear Case
The biggest risk is that the memory shortage ends. A report that Toshiba plans to add hard drive supply was enough to drop the stock 10% in a day, because more supply from a rival can weaken Seagate’s pricing power. Seagate also depends heavily on data centers, and the data center buildout rests on a small group of big AI companies that must keep spending and stay financially healthy.
Valuation
Seagate Technology Holdings plc (NASDAQ:STX) trades at a forward P/E of about 24, in line with the sector median of about 24.
Over the past year, its revenue grew about 34%, against a sector median of about 13%, and its earnings per share more than doubled, up about 105%, against about 10% a year for the market over the long run. Its P/E on the past year’s earnings is about 55, which looks high only because earnings were much lower a year ago. Analysts expect earnings growth of about 130% in fiscal 2027, slowing to about 55% in fiscal 2028, against about 32% and 16% for the S&P 500, so Seagate costs about the same as the typical sector stock while growing several times faster. That growth depends on data center spending, since about 90% of Seagate’s shipments go to data centers, and if the spending levels off, a P/E of 24 looks too high for Seagate Technology Holdings plc (NASDAQ:STX).
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