Seagate Earnings Beat on AI Data-Center Demand

Seagate Technology Holdings plc (STX) reported earnings on Jan. 27, 2026, exceeding expectations as AI-driven data-center demand boosted shipments and margins. The company issued stronger guidance for the March quarter, reflecting sustained cloud and data-center strength.

Q2 Results and Margins

For the fiscal quarter ended Jan. 2, 2026, Seagate posted revenue of $2.8 billion, up 7.0% sequentially and 22.0% year over year. Non-GAAP earnings per share rose 19.0% sequentially to $3.11, surpassing the forecast of $2.79. On a GAAP basis, net income was $593 million, or $2.60 a share, compared with $336 million, or $1.55 a share, a year earlier.

Non-GAAP gross margin increased 210 basis points sequentially to 42.2%, a 670 basis-point gain year over year. GAAP gross margin was 41.6%, while non-GAAP operating margin rose 290 basis points sequentially to 31.9%. Free cash flow reached $607 million, a 42.0% sequential increase and the highest in eight years.

Shipments and Data-Center Revenue

Seagate shipped 190 exabytes in the quarter, a 26.0% year-over-year increase. Data-center nearline shipments accounted for 165 exabytes, up 31.0% and representing 87.0% of total volume. Data-center revenue totaled $2.2 billion, about 79.0% of sales and up 28.0% year over year. Edge and Internet of Things (IoT) revenue was $601 million, roughly 21.0% of total sales.

Guidance and Capital Moves

Management guided March-quarter revenue to $2.9 billion, plus or minus $100 million, and non-GAAP EPS to $3.40, plus or minus $0.20. Non-GAAP operating expenses are expected near $290 million, about 10.0% of revenue, with a mid-30s percent non-GAAP operating margin at the revenue midpoint. The outlook assumes continued cloud and data-center demand, flat-to-up pricing, an accelerating heat-assisted magnetic recording (HAMR) ramp, and minimal tariff impact. Areal-density gains include a 4-terabyte-per-platter transition and a 10-terabyte-per-disk roadmap. Diluted shares are projected at about 230 million, including roughly 7.6 million from 2028 exchangeable notes, with a tax rate near 16.0%.

Seagate declared a dividend of $0.74 per share and retired $500 million of exchangeable senior notes due 2028. At quarter end, the company held about $1 billion in cash, $2.3 billion in total liquidity, and $4.5 billion in gross debt, leaving net leverage near 1.1 times. Capital expenditures totaled $116 million, about 4.0% of revenue, with an FY2026 capex target of 4–6% of revenue.

Chair and Chief Executive Dave Mosley said, "This performance highlights our team's strong operational execution." The company expects initial production of its HAMR-based Mozaic 4+ product in the third quarter of fiscal 2026. Nearline capacity is allocated through calendar 2026, and contractual agreements with cloud customers extend into calendar 2027.