Demand for AI-driven data centers is strong! Storage giant Seagate's Q2 revenue increased by 21.5%, operating profit margin hit a record high, Q3 revenue guidance exceeded expectations, and the stock price rose by about 9% after the market.

**Source**: Wall Street Insights

**By**: Zhao Yuhe, Dong Jing

Earnings report shows that Seagate's non-GAAP gross margin reached **42.2%** in Q2 (35.5% in the same period last year), and its operating margin rose to **31.9%** (23.1% in the same period last year), both hitting record highs. The non-GAAP earnings per share stood at **$3.11**, also a new high and far exceeding the $2.03 recorded in the same period last year. The company expects Q3 revenue to hit $2.9 billion, surpassing Wall Street expectations. CEO Dave Mosley attributed this sustained strong performance to "the durability of data center demand" and the amplifying effect of AI applications on data creation.

Benefiting from the persistent demand for high-capacity storage in data centers, storage giant Seagate Technology delivered a quarterly earnings report that far exceeded Wall Street expectations, with both revenue and profit registering significant growth. Meanwhile, the company’s gross margin and operating margin hit all-time highs.

On January 27, Seagate Technology released its latest earnings report, showing that its revenue in the second quarter of fiscal year 2026 reached **$2.825 billion**, up 21.5% year-on-year from $2.325 billion in the same period last year. The non-GAAP earnings per share came in at $3.11, substantially higher than the $2.03 in the prior-year quarter. Gross margin improved notably to 42.2%, compared with 35.5% a year earlier.

The earnings report also indicated that Seagate expects its fiscal Q3 revenue to be approximately $2.9 billion (plus or minus $100 million), above analysts’ expectations of $2.77 billion. The adjusted earnings per share are projected to be $3.40 (plus or minus $0.20), also exceeding the market consensus of $2.96.

Dave Mosley, Chairman and Chief Executive Officer of Seagate, stated that with the company’s areal density-driven product roadmap, Seagate is well-positioned to meet the modern data centers’ demand for exabyte-scale storage solutions that balance performance and cost-effectiveness. As AI applications expand data creation and economic value, this positioning will generate long-term value for customers and shareholders.

Mosley emphasized that as AI applications amplify data creation and economic value, modern data centers are increasingly in need of storage solutions that can deliver both performance and cost efficiency at exabyte scale. Leveraging its areal density-driven product roadmap, Seagate is able to meet evolving storage needs and the growth in exabyte-scale demand.

Following the release of the earnings report, Seagate’s shares surged nearly 9% in after-hours trading. Prior to this, the stock had more than tripled in value in 2025 and climbed another 6% last week ahead of the earnings announcement, with investor optimism surrounding AI-related infrastructure fueling the sharp rise in share price.

### Substantial Improvement in Profitability

What is more noteworthy than the revenue growth is Seagate’s improved profitability.

The earnings report showed that Seagate’s Q2 non-GAAP operating margin reached 31.9%, an increase of 8.8 percentage points from 23.1% in the same period last year. The company’s non-GAAP gross margin hit 42.2%, up 6.7 percentage points year-on-year from 35.5%. Both figures set new records for the company.

In terms of net profit, the non-GAAP net profit was **$702 million**, a year-on-year increase of 62.1%; the GAAP net profit stood at **$593 million**, rising 76.5% from the prior-year quarter.

Analysts believe that while demand for high-capacity storage from data center customers is indeed robust, the more critical factor is the optimization of the product mix.

CEO Dave Mosley highlighted a key piece of information in the earnings report: "the continued mass production of Mozaic products based on HAMR technology".

**HAMR (Heat-Assisted Magnetic Recording)** technology represents the next-generation breakthrough in hard disk storage, enabling more data to be stored in the same physical space. This is exactly what AI data centers need—exabyte-scale storage solutions that strike a balance between performance and cost efficiency.

Alongside the substantial growth in revenue and profit, Seagate also demonstrated strong cash generation capability. The company generated **$723 million** in operating cash flow and **$607 million** in free cash flow in the second quarter.

It is worth noting the company’s capital allocation strategy: on the one hand, it repaid $500 million in convertible senior notes to optimize its capital structure; on the other hand, it distributed $154 million in cash dividends and announced that it will pay a quarterly dividend of $0.74 per share in April 2026.

Analysts pointed out that this dual move of "deleveraging + shareholder returns" reflects the management’s confidence in future cash flow, but it may also indicate that the company believes there is a lack of expansionary capital expenditure opportunities with higher returns at the current stage.

### Better-Than-Expected Q3 Guidance

Seagate’s Q3 guidance may be even more noteworthy than its Q2 actual results.

The earnings report stated that the company expects Q3 revenue to be approximately $2.9 billion (plus or minus $100 million), with non-GAAP earnings per share expected to be around $3.40 (plus or minus $0.20).

A comparison of these figures with Wall Street’s previous expectations reveals a clear positive gap: analysts had projected Q3 revenue of about $2.77 billion and earnings per share of $2.94. Seagate’s midpoint guidance for revenue is 4.7% higher than the consensus, while the midpoint for earnings per share is 15.6% above expectations.

CEO Dave Mosley attributed this continued strength to "the durability of data center demand" and the amplifying effect of AI applications on data creation. With the explosive growth in demand for large language model training and inference, massive data storage has become a necessity for AI infrastructure.

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