Seagate Sees Storage Demand Outpacing Supply as AI and Cloud Drive HDD Growth

Seagate expects the HDD upcycle to continue through fiscal 2027, driven by public-cloud spending, enterprise data centers and AI-related applications.

Customer purchase orders and long-term agreements already cover much of the next several quarters.

Seagate targets at least 25% annual exabyte growth over the next two to three years by moving from 30 TB to 40 TB drives and qualifying 50 TB products in roughly a year.

Pricing remains favorable as supply stays tight, while capital expenditures are expected to remain at 4%–6% of revenue. After reducing debt, Seagate plans to direct more free cash flow toward share repurchases while maintaining dividends.

Seagate Technology NASDAQ: STX CFO Gianluca Romano said the hard-disk-drive maker expects demand for data storage to continue outpacing supply, supported by public-cloud spending, enterprise demand and emerging artificial intelligence applications.

Speaking at a Citi technology conference, Romano said the current HDD upcycle has been developing for more than three years, with the company reporting improving revenue and profitability over that period.

Based on purchase orders already in place, Seagate expects additional improvement through fiscal 2027, he said.

Seagate is focusing on increasing the amount of storage capacity shipped, measured in exabytes, rather than expanding the number of drive units it produces.

Romano reiterated the company’s target to grow exabytes at a compound annual rate of at least 25% over the next two to three years.

The strategy centers on heat-assisted magnetic recording, or HAMR, technology.

Seagate is transitioning from 30-terabyte HAMR drives to 40-terabyte products and expects to begin qualifying a 50-terabyte drive in roughly a year, Romano said.

Moving from 30 TB to 40 TB raises capacity by 33% while holding unit volumes steady, he said, while a shift from 40 TB to 50 TB would add another 25% increase in capacity per drive.

Seagate began selling HAMR products nearly two years ago and is already on its second generation of the technology, with a third generation expected in a few quarters, according to Romano.

He said the second-generation HAMR qualification process is progressing more quickly than the first generation because customers are now more familiar with the technology.

The initial deployments required extended testing to validate drive configurations in large data-center environments, he said.

Romano said Seagate has long-term agreements with customers covering the next two to three years and purchase orders for the next four to five quarters.

The purchase orders specify product mix, pricing and delivery timing, while longer-term agreements establish exabyte-volume commitments that customers use in planning data-center expansion.

He said customers have requested higher volumes each time the agreements are revisited.

Seagate seeks to allocate its expected production capacity without overcommitting on deliveries, Romano said.