While much of the buzz around artificial intelligence now focuses on high-performance chips and software, just as important are data centers and massive data storage. That’s why Seagate Technology (STX) is a stock to watch.
Seagate has been making hard drives for personal and business computers for decades. It now finds itself as an important supplier of high-volume disk drives for data centers. And capacity is ballooning due to AI computing needs.
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Seagate’s technology falls right into the mix. Hard disk drives are ideal for maintaining the integrity of AI training data sets. They also come in handy for preserving AI-generated content, the company says.
Mass-capacity drives are already Seagate’s largest product segment, accounting for 83% of hard drive sales in the latest quarter. In the company’s July 23 earnings call, Seagate noted that demand for cloud-computing demand for near-line storage — or data that’s not accessed frequently — doubled in the June-ended quarter from a year ago. It should continue to expand in fiscal 2025.
“We attribute the underlying demand drivers to an increase from both traditional cloud computing workloads, as well as new AI-related deployments,” Chief Executive Dave Mosley told Wall Street analysts.
The comments prompted one analyst to ask how much AI demand is growing, and whether it’s showing up in “chunky orders.”
Seagate Stock: AI Demand In ‘Early Innings’
“As far as Gen AI, I think we’re in the very early innings,” Mosley responded. “So we can all see the efficiency of some of these new applications that are coming. But I have yet to see the big data applications really taking off.”
He added that Seagate has some purchase orders specifically targeted at AI, “but we have not really seen how fast some of these are going to grow; and especially for the big data applications that we’re really excited about, they’re still in the very early innings.”
Seagate had a difficult fiscal 2023 in which it lost 37 cents a share. It then rebounded to gain 68 cents a share for the fiscal year that ended in June. Analysts expect earnings for the current fiscal year to rocket 833% to $6.35 a share, according to FactSet.
A string of declining sales flipped in the June-ended quarter, when revenue climbed 18%. Estimates from Seagate stock analysts call for continued gains of 28% to 47% the next four quarters.
Management credited the turnaround partly on a build-to-order strategy that provides greater supply-demand predictability and optimizes cash resources.
Seagate Chart Analysis
Despite a hump in the middle of its chart pattern, Seagate stock is forming a cup-with-handle base. The buy point sits at 110.93.
Shares have climbed roughly 45% since the stock broke out of a nearly yearlong consolidation in November 2023, according to IBD MarketSurge. Yet, the current base is still considered first-stage. That’s because the stock climbed no more than 18% from three bases it formed over the past year.
The relative strength line is not quite at new highs. But it’s close enough that it qualifies as a positive sign as the stock approaches the buy point.
Seagate stock has the second-best Composite Rating of nine companies, at 75, in Investor’s Business Daily’s data storage industry group. It also has the best price performance of the group, judging by its Relative Strength Rating of 87.
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