Seagate Technology Delivers Strong Q2 Beat on AI-Driven Data Center Demand
Seagate Technology Holdings (NASDAQ:STX) reported fiscal second-quarter results that handily exceeded Wall Street's expectations, driven by resilient demand for mass-capacity storage from data centers. The company's performance highlights the ongoing strength in its core market, though the initial after-hours stock reaction was mixed.
Earnings and Revenue: A Clear Beat
The data storage leader's results for the quarter ended January 2, 2026, showcased significant year-over-year growth and a decisive outperformance against analyst forecasts.
- Revenue: Reported at $2.83 billion, a 21.5% increase from the $2.33 billion reported in the same quarter last year.
- Analyst Expectations: The consensus revenue estimate stood at approximately $2.76 billion. Seagate's actual result surpassed this by roughly 2.3%.
- Earnings Per Share (Non-GAAP): Came in at $3.11, a substantial jump from the $2.03 per share reported a year ago.
- Analyst Expectations: Wall Street was anticipating non-GAAP EPS of $2.84. The company's result exceeded this estimate by approximately 9.4%.
Key Financial Highlights from the Quarter
Beyond the top and bottom-line beats, Seagate's earnings release emphasized record profitability and strong cash generation, underscoring efficient operational execution.
- Record Margins: The company achieved new highs for both gross margin and operating margin. Non-GAAP gross margin expanded to 42.2%, up from 35.5% a year ago, while non-GAAP operating margin reached 31.9%, compared to 23.1% in the prior-year period.
- Robust Cash Flow: Seagate generated $723 million in cash flow from operations and $607 million in free cash flow during the quarter.
- Balance Sheet and Capital Returns: The company retired $500 million of Exchangeable Senior Notes and paid $154 million in cash dividends. A quarterly cash dividend of $0.74 per share was declared for payment in April 2026.
Guidance vs. Analyst Expectations
Management provided an outlook for the fiscal third quarter (Q3 2026) that also points to continued strength.
- Seagate's Q3 Guidance: The company expects revenue of approximately $2.90 billion (plus or minus $100 million) and non-GAAP EPS of about $3.40 (plus or minus $0.20).
- Analyst Forecasts: Prior to the report, analysts were modeling Q3 revenue of roughly $2.77 billion and non-GAAP EPS of $2.94.
- Comparison: Seagate's revenue guidance midpoint is about 4.7% above prior consensus, while its EPS guidance midpoint is approximately 15.6% higher, signaling confidence in sustained demand and profitability.
Market Reaction and Context
Despite the clear earnings beat and optimistic guidance, Seagate's stock experienced volatility following the report. Shares initially traded higher in the after-hours session but later pared some of those gains. This muted reaction in a stock that has already seen significant appreciation—up nearly 30% over the past month—suggests that the strong results may have been largely anticipated by the market. Some investors could also be weighing the performance against very high expectations set by the stock's recent run-up in the context of the broader "AI data storage" trade.
Strategic Focus and CEO Commentary
CEO Dave Mosley directly tied the strong quarter to the company's strategic positioning for the AI era. He highlighted "the durability of data center demand" and "the ongoing ramp of our HAMR-based Mozaic products" as key drivers. Mosley emphasized that as AI applications amplify data creation, modern data centers require storage solutions that balance performance and cost-efficiency at an exabyte scale, a need Seagate's product roadmap is designed to meet.
Conclusion
Seagate Technology's fiscal Q2 report delivered a comprehensive beat on both revenue and profits, fueled by unwavering demand from data center customers building out infrastructure for AI and mass data storage. The company's record margins and strong forward guidance reinforce a positive narrative around its execution and market positioning. While the immediate stock reaction was tempered, the fundamental results underscore a robust operational performance. Investors will now watch for the continued ramp of its next-generation HAMR technology to sustain this momentum.
For a detailed look at Seagate's historical earnings and future analyst estimates, visit the STX earnings estimates page.
Disclaimer: This article is for informational purposes only and does not constitute investment advice, nor does it recommend the purchase or sale of any specific security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
