Seagate Technology beats earnings, but why did the stock plummet?

Seagate Technology Holdings plc’s (NASDAQ: STX) stock faced a sharp decline following its Q1 FY 2025 earnings report. Despite surpassing Wall Street estimates with an EPS of $1.58—beating the forecasted $1.30—and revenue reaching $2.17 billion, above expectations of $2.13 billion, the market reacted negatively. Shares dropped by over 7% in early trading, raising questions about investor sentiment and the company’s future outlook.

Earnings Beat but Guidance Disappoints

Although Seagate’s quarterly figures were positive, the company’s stock price tumble underscores the broader concerns investors have regarding its guidance. CEO Dave Mosley highlighted Seagate’s strategy to manage growing inventories, but the cautious approach did not resonate well with the market. Analysts expressed unease over Seagate’s outlook, as it continues to face declining demand in the traditional hard disk drive (HDD) sector. This shift occurs as the industry moves towards solid-state drives (SSD) and cloud-based solutions, where competitors are gaining ground.

Market observers note that while Seagate’s quarterly revenue surged 49.1% year-on-year, the firm’s focus on inventory management and a conservative sales forecast for Q2 FY 2025 cast doubt over its ability to maintain momentum. Analysts from Evercore ISI and Citigroup maintained a ‘buy’ rating but noted that the firm’s exposure to slowing cloud and enterprise storage demand might limit upside potential. Seagate’s share price currently hovers around $104.41, down 7.31% following the earnings release.

Expert Opinion: Long-Term Viability Questioned

Several financial experts have weighed in on the situation. An analyst at Rosenblatt Securities reiterated concerns over Seagate’s reliance on HDD technology, emphasizing that while it remains a leader in the mass-capacity storage market, the company is vulnerable as SSD adoption rises across industries. The firm’s investment in HDD technology, while maintaining cost efficiency, might not be sufficient to counter the rapid shifts towards SSDs and AI-driven cloud storage solutions.

Gus Richard from Northland Capital Markets, who maintains a ‘buy’ rating, also pointed out that despite the earnings beat, Seagate’s long-term competitiveness is a pressing issue. He emphasized that while the company’s mass storage solutions could see traction in the cloud segment, the broader slowdown in tech spending and a lukewarm guidance report have understandably led to investor caution.

Market Sentiment and Stock Price Trends

Market sentiment around Seagate remains mixed. While some analysts project an upside potential with price targets reaching up to $144, others suggest that the stock’s near-term trajectory will depend heavily on how Seagate manages its inventories and navigates demand fluctuations in its core markets. Analysts at Citigroup adjusted their price target slightly to $130, maintaining a strong buy stance but acknowledging the uncertainty surrounding the company’s forward guidance.

In light of the cautious market outlook, investors are closely watching Seagate’s next moves, particularly how it adapts to the rising demand for advanced data storage solutions like SSDs and its response to competition. The stock’s recent performance reflects broader concerns about the technology sector’s volatility, especially in the storage domain.

Looking Ahead: Can Seagate Rebound?

Despite the recent slump, Seagate is positioning itself for the long term by investing in AI and cloud-based technologies. The firm aims to balance its product portfolio to capture emerging trends, but it remains to be seen whether these efforts will translate into sustained growth. Experts believe that achieving a stable revenue base in an evolving tech landscape will be essential for the company to regain investor confidence.