Seagate Technology Holdings plc STX stock has been on an upward trajectory amid broader market volatility. Despite solid year-to-date gains, STX’s valuation remains low, prompting investors to ponder if this represents a buying opportunity. 

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STX is currently trading at a forward 12 month price-to-sales ratio of 2.04X, a discount compared with the Zacks Computer & Technology sector’s 6.28X and the industry’s 3.12X.

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Shares of STX have gained 15.2% year to date, outpacing the sub-industry’s growth of 10.8%. The uptrend is driven by Seagate’s impressive top-line performance in the past few quarters due to higher demand for mass-capacity solutions. STX’s earnings beat estimates in all the last four quarters, delivering an average surprise of 85.1%. Closing the last session at $98.39, the stock is still trading 14.7% below its 52-week high.

While Seagate's recent gains may be encouraging, investors must consider whether the stock's discounted price is justified.

Let us dig deeper to find out.

STX Gains From Higher Mass Capacity Demand

Seagate, a leader in data storage solutions, is well-poised for strong growth amid favorable mass capacity demand trends despite stiff competition from prominent players in the storage space like NetApp NTAP, Pure Storage PSTG and Western Digital Corporation WDC.

Stronger nearline cloud demand and increasing nearline enterprise sales remain tailwinds. Nearline cloud demand is being driven by cloud service providers (“CSPs”) across the United States. On the last earnings call, Seagate added that it has been witnessing positive demand trends globally. In the last reported quarter, mass capacity revenues surged 70% year over year and 21% sequentially.

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Mozaic Platform: A Game Changer for STX?

Seagate expects HAMR (heat-assisted magnetic recording) 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 been ramping up its 24TB CMR / 28TB SMR drives, and these now represent the second-highest revenue product, contributing more than 20% of total nearline revenues.

Seagate added adoption of Mozaic 3+ was gaining steam. The qualification with the lead CSP customer is progressing well, and it has expanded qualifications with several other cloud and enterprise customers in the current quarter. The company anticipates delivering capacity increases through further aerial density gains for its Mozaic 4+ platform. This will lead to lower savings for its customers.

Seagate’s Upbeat Outlook

Management anticipates continued improvement in the fiscal second quarter, owing to shipments for the latest high-capacity products expanded across global CSP and enterprise customers. Also, cloud service providers are focusing more on the development and deployment of AI applications while building cloud infrastructure. Seagate believes HDDs will play a key role in enabling these stages of the AI adoption curve and expects HDD demand to pick up pace going ahead.

Management anticipates second-quarter fiscal 2025 revenues to be $2.3 billion (+/- $150 million). STX expects continued momentum in mass capacity demand, caused by strengthening nearline demand from global cloud customers and improvement in the enterprise & OEM markets. This increase in mass capacity revenues is likely to offset lower revenues from legacy and other markets.

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 low-20s percentage range of revenues in the current quarter.

STX Estimate Activity Northbound

Analysts appear to be bullish for Seagate, as implied by the upward estimate revision activity.

In the past 60 days, the earnings estimates for the current quarter and next quarter have been revised upward by 4.4% and 1.5%. The same for the current year has been up by 5.5% in the same period.

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Should You Buy STX Now?

Seagate's robust performance, strategic initiatives, favorable demand trends, and appealing dividend policy position it as an attractive investment opportunity. With the stock currently trading at a discounted price, both new and existing investors may find it an opportune time to buy. The pullback from its 52-week high presents a potential entry point for investors, especially with Seagate holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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NetApp, Inc. (NTAP) : Free Stock Analysis Report

Western Digital Corporation (WDC) : Free Stock Analysis Report

Seagate Technology Holdings PLC (STX) : Free Stock Analysis Report

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