Will AI Demand Proceed To Drive Seagate Inventory Greater?

Seagate stock (NASDAQ: STX) has seen a 60% rise in worth since early January 2023 – leaping from ranges of $64 then to $102 now – vs. a rise of about 42% for the S&P 500 over this era. Compared, its peer – Western Digital stock (NASDAQ: WDC) – has seen a 2x rise over this era. Each corporations are seeing a restoration in storage demand, amid the AI increase. The rise in STX inventory can primarily be attributed to a major 177% rise within the firm’s P/S ratio to 3.2x now, versus 1.2x in 2022. Our dashboard on Why Seagate Stock Moved has extra particulars.

Traders have rewarded STX inventory, due to the rebound in its gross sales of storage merchandise and enlargement of revenue margins these days.  Nevertheless, the rise in STX inventory these days has been removed from constant, with annual returns being significantly extra unstable than the S&P 500. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a set of 30 shares, is significantly much less unstable. And it has outperformed the S&P 500 annually over the identical interval. Why is that? As a gaggle, HQ Portfolio shares supplied higher returns with much less threat versus the benchmark index; much less of a roller-coaster trip, as evident in HQ Portfolio efficiency metrics.

Given the present unsure macroeconomic atmosphere round fee cuts and a number of wars, may STX face the same scenario because it did in 2022 and underperform the S&P over the following 12 months — or will it see a robust bounce? We estimate Seagate’s Valuation to be $118 per share, reflecting over 15% upside from present ranges of round $100. The corporate’s P/S ratio has been in a variety of 1.2x to three.3x previously three years. This may be attributed to a major 37% fall in gross sales in fiscal 2023 and one other 11% in fiscal 2024 (fiscal ends in June), owing to decrease quantity and value erosion amid a major decline in storage demand. Our forecast of $118 relies on 2.7x ahead anticipated revenues of $44 per share. The two.7x determine is barely larger than the inventory’s common ahead P/S ratio of 2x seen during the last three years. We expect an increase in valuation a number of now is smart, given the rebound in demand and robust anticipated earnings progress within the coming years.

Seagate is now targeted on Warmth Assisted Magnetic Recording (HAMR) merchandise, which may final for a for much longer life than that of the standard disks. It’s delivery exhausting disks of 30 TB with the brand new HAMR expertise. With the demand anticipated to select up for HAMR disks, Seagate is well-positioned to profit from the identical. AI is driving demand for reminiscence and storage to assist elevated data-processing. The corporate stands to profit from its mass-capacity drives, given the rising want for enterprises to seize extra knowledge.  Seagate has additionally seen its profitability enhance these days. Its working margin fell from 14% in 2021 to 1% in 2023, however recovered to six% in 2024. Going ahead, working margin is predicted to enhance additional.

We count on Seagate’s income to rise at a median annual fee of round 21% from $6.6 billion in 2024 to $11.3 billion in 2027. Additionally, its adjusted earnings per share is  anticipated to surge a whopping 8x from $1.29 in 2024 to over $10 in 2027. Traders have additionally rewarded the inventory with a better valuation a number of, however is it price choosing now? We expect so. We consider that the positives round AI demand and mass-capacity storage options are usually not totally priced in for Seagate. Notably, the common analyst value estimate of $116 for STX additionally displays almost 15% upside, implying that the inventory has extra room for progress.

Whereas STX inventory seems to be like it might see larger ranges, it’s useful to see how Seagate’s friends fare on metrics that matter. You will see different useful comparisons for corporations throughout industries at Peer Comparisons.