Seagate tops S&P 500 with 146% surge in 2025: what’s driving the rally and should you buy?

Shares of Seagate Technology have soared in 2025, cementing the company as the year’s strongest performer in the S&P 500.

The American data storage firm, best known for its mass-capacity hard disk drives, has seen its stock jump 146% this year, far outpacing other high-growth peers.

On Monday alone, the company’s shares rose 9%, boosting its market capitalization to $40 billion.

Over the past 12 months, Seagate has generated more than $9 billion in sales, underpinned by growing demand for hard disk drives (HDDs), solid-state drives (SSDs), and its latest breakthrough in storage innovation.

Palantir, which stunned Wall Street last year with gains of over 300%, now trails Seagate in 2025 performance, rising 122% so far.

Nearline storage demand drives revenue

Much of Seagate’s momentum has come from booming demand for mass-capacity storage, particularly in the cloud and enterprise markets.

Revenues from mass-capacity devices rose 40% year-over-year in the most recent quarter to $2 billion.

Nearline cloud storage made up the majority of this growth, with 91% of exabytes shipped in the June quarter tied to nearline drives.

The acceleration reflects broader investment cycles in cloud infrastructure and AI-ready data centers, both of which are consuming unprecedented levels of memory.

As companies race to build and expand AI systems, Seagate’s role as a supplier of high-capacity storage has become indispensable.

HAMR hard drives set new industry benchmark

The product that has investors most excited is Seagate’s new Heat-Assisted Magnetic Recording (HAMR) HDDs.

First shipped in July, these drives represent a leap forward in storage technology, offering capacities between 30 and 36 terabytes—the highest available in the industry.

The drives build on the Mosaic HDDs launched last year but deliver even greater density.

Analysts say HAMR products provide critical value for AI hyperscalers, where demand for storage is growing faster than the ability to contain costs.

Compared to flash memory, the price-per-terabyte of Seagate’s HAMR HDDs remains highly competitive, making them a preferred choice for large data centers.

Strong fiscal year capped with record results

Seagate capped fiscal 2025 with record annual revenue and a double-digit beat on both the top and bottom line.

In the quarter ending June, the company reported $2.44 billion in revenue and earnings per share of $2.59. Revenue grew 13% from the prior quarter and nearly 30% year-on-year.

Free cash flow in the fiscal fourth quarter reached $425 million, with annual free cash flow totaling $818 million.

Capital expenditures were 3% of revenues, below the long-term target range of 4–6%, reflecting disciplined investment.

The company expects stronger cash generation in the second half of 2025, even as it faces a large variable compensation payout.

Executives have flagged fiscal 2026 as a year of higher profitability, supported by structural changes and a robust product pipeline.

Balancing growth with shareholder returns

Seagate has sought to balance aggressive expansion with capital returns.

In fiscal 2025, it distributed nearly 75% of free cash flow through dividends while also paying down $150 million in gross debt in the fourth quarter.

Management has positioned this mix as key to sustaining shareholder value while meeting swelling demand for data storage.

Analysts have largely endorsed this strategy. Fourteen of 19 firms covering the stock recommend a “Buy,” with just one rating it “Sell.”

Risks tied to AI spending cycles and valuation concerns remain

Despite the upbeat outlook, risks persist.

Seagate now trades at more than three times sales and 28 times forward earnings, well above historical averages, raising concerns about its valuation.

Seagate’s reliance on AI hyperscalers as primary customers means the company is heavily exposed to capital expenditure cycles in that sector.

Should AI investment slow, revenues could come under pressure.

The company’s guidance for the first quarter of fiscal 2026 also fell slightly short of Wall Street expectations, prompting a brief 3% dip in the stock following earnings.

The swift rebound suggests investors are demanding near-perfect execution going forward.

Outlook remains positive despite caution

For now, momentum remains firmly in Seagate’s favor.

Citi recently raised its price target to $215, the highest on Wall Street, though the consensus target of $157 still lags behind the current market price.

Analysts at Morgan Stanley advise buying on any dips, arguing that the macro environment for AI infrastructure spending remains strong.

With its HAMR technology and dominant position in mass-capacity storage, Seagate appears well placed to remain at the center of the AI-driven data boom into 2026 and beyond.

The post Seagate tops S&P 500 with 146% surge in 2025: what’s driving the rally and should you buy? appeared first on Invezz