Seagate Technology shares continued their downward trajectory on Tuesday, declining 2.3% to $723.81 on the Nasdaq, extending Monday's 6.87% plunge. The sell-off follows comments from CEO Dave Mosley at the JPMorgan Global Technology, Media and Communications Conference, where he indicated that constructing new manufacturing facilities would be too slow to address the surging demand for hard drives driven by artificial intelligence workloads.
Mosley emphasized that Seagate is ramping up production by upgrading existing plants and advancing technology, rather than building new factories. The company is focusing on heat-assisted magnetic recording (HAMR) technology, which uses heat to pack more data onto each platter, and is transitioning to higher-capacity platters while adding equipment at current sites. This approach aims to boost output without the lengthy timelines associated with new construction.
Investor concerns are shifting from demand to supply, as hard-disk drive makers benefit from AI's appetite for cost-effective storage in data centers. However, when capacity appears constrained, stocks take a hit. The worry is that if cloud buyers cannot secure enough drives, some sales may be deferred, and if AI infrastructure spending pulls back, excess capacity could hang over the market.
Despite the recent stock weakness, Seagate reported strong financials for its fiscal third quarter. Revenue reached $3.11 billion, with a GAAP gross margin of 46.5% and free cash flow of $953 million. For the fiscal fourth quarter, the company guided revenue of $3.45 billion (plus or minus $100 million) and non-GAAP diluted earnings per share of $5.00 (plus or minus 20 cents).
Mosley described the current environment as a "new era of structural growth" in the earnings release, citing rising data demand from AI as a positive catalyst for storage. This bullish outlook is tempered by near-term supply tightness, which keeps prices elevated but also raises nervousness about lost sales when products are hard to find.
The broader market also faced headwinds on Tuesday, with the S&P 500 and Nasdaq opening lower, dragged down by chip stocks and lingering inflation concerns. In the storage sector, Western Digital slipped 1.9%, while Sandisk ticked up 0.4% and Micron added 0.2%. Competition remains intense, with Seagate, Western Digital, and Sandisk all reporting steady AI-driven storage demand, and executives indicating that capacity is allocated or sold out through 2026.
Downside risks are becoming more defined. If cloud buyers cannot obtain enough drives, some sales may simply be pushed out. A potential pullback in AI infrastructure spending could quickly turn supply discipline into excess capacity. Additionally, Seagate's April guidance accounted for only a small impact from tariffs and the Middle East conflict, leaving further risk on the table.
Seagate management is scheduled to speak at TD Cowen's tech conference on May 27 and at Bank of America's global tech conference on June 2, where they will meet with investors and likely provide further clarity on supply dynamics and demand trends.
