Seagate Technology Holdings plc (NASDAQ:STX) saw its shares climb in premarket trading Wednesday, recovering from a sharp decline the previous day, after the company issued an optimistic margin forecast that highlighted its operating leverage. The stock advanced 5.9% to $791.11 ahead of the regular session, following an 8.5% drop on Tuesday.
The rebound was primarily driven by the forward-looking guidance rather than the quarterly results themselves. For the September quarter, Seagate expects revenue of approximately $4.1 billion, plus or minus $100 million, which is 9.3% above the $3.75 billion consensus from LSEG. Adjusted earnings are projected at $7.30 per share, surpassing the LSEG consensus by 25.9%.
More notably, management anticipates an adjusted operating margin close to 50%, up from 44.6% in the June quarter. This margin expansion is the key metric capturing investor attention. Based on the midpoint revenue estimate, adjusted operating profit would be roughly $2.05 billion, compared to $1.619 billion in the prior quarter. This implies that Seagate would generate about $431 million in additional operating profit from $471 million in incremental revenue, translating to roughly 92 cents of operating profit for every extra dollar of sales. The company cautioned that the margin target is approximate.
The strong conversion rate is underpinned by disciplined cost control. Adjusted operating expenses are expected to rise by only $7 million to about $300 million. Chief Financial Officer Gianluca Romano noted that incremental gross margin has been "very strong for the last several quarters."
Seagate's fiscal fourth-quarter results also exceeded expectations. Revenue surged 48.5% year-over-year to $3.63 billion, beating the analyst forecast of $3.49 billion. Adjusted earnings came in at $5.71 per share, ahead of the $5.09 average estimate.
Data-center revenue, which now accounts for 81% of total revenue, jumped 57% to $2.93 billion. Nearline exabyte shipments rose 43% to 195 exabytes. The company reported that nearline supply is largely committed through the end of calendar 2028, with customers already planning for 2029 and beyond. Seagate is ramping production of its Mozaic 4+ drives with two major global cloud clients.
Chief Executive Dave Mosley commented, "As AI accelerates data generation and its value, we see durable long-term demand for mass capacity storage." The company's cash flow also strengthened, with free cash flow reaching $1.12 billion in the fourth quarter and $3.11 billion for the full fiscal year. Seagate plans to pay down an additional $1.2 billion of debt in the September quarter.
Despite the positive outlook, risks remain. The heavy concentration on data-center revenue exposes Seagate to fluctuations in cloud demand. The forecast assumes minimal direct impact from recently announced tariffs, and all projections are on a non-GAAP basis. The company faces a clear execution challenge: achieving an operating margin near 50% while growing quarterly revenue by roughly 13%.
Analyst sentiment remains supportive. Morgan Stanley's Erik Woodring maintained an overweight rating on both Seagate and Western Digital (NASDAQ:WDC), calling concerns about the sustainability of hard-drive demand "overblown." Western Digital is scheduled to report its fiscal fourth-quarter earnings on August 5. Meanwhile, investors are also watching the Federal Reserve's announcement on Wednesday for broader market cues.
Seagate shares had risen 8.1% over the week through Friday before the two-day decline of 12.3%. The stock's recent volatility underscores the market's focus on the company's ability to sustain its margin trajectory amid evolving demand dynamics.
