One of the Best AI Stocks Just Got Better After Blowout Earnings

The AI stock is up more than 200% year-to-date.

Seagate Technology (STX) has been one of the best performing stocks this year, and on Wednesday it charged even higher after releasing blowout fiscal first quarter earnings.

The stock price jumped some 19% on Wednesday to over $264 per share on the strength of its Q1 earnings that crushed analysts estimates. Seagate stock is now up about 203% year-to-date, making it one of the best performing large cap stocks on the market.

Seagate is considered an AI stock, and it sits at the heart of the AI revolution as the leading provider of high-capacity data storage and disk drives for data centers and other types of high-performance computing. Along with its rival Western Digital (WDC), Seagate dominates the industry, as the two companies split about 80% of the total market share.

That dominance was on display in its Q1 results for the quarter that ended September 30.

• Revenue: $2.63B, up 21% year-over-year. This beat estimates of $2.55B.

• Net income: $305M, up 80% year-over-year.

• Earnings: $2.43 per share, up 72% year-over-year.

• Adjusted earnings: $2.61 per share, up 65% year-over-year. This beat estimates of $2.40 per share.

“Our performance underscores the team’s strong execution and robust customer demand for our high-capacity storage products,” Dave Mosley, Seagate’s chair and CEO, said.

Ramping Up Shipments

The company also boosted its free cash flow in the quarter to $427 million, up from $7 million in the same quarter a year ago. It also generated $532 million in cash flow from operations. This provides Seagate with plenty of cash in which to invest in its growth to meet the high and growing demand.

Mosley said the company was ramping up its shipments of its Mozaic HAMR (heat-assisted magnetic recording), which is its hard drive technology platform that significantly increases the storage capacity of hard drive disks.

The technology has been qualified by five of the seven largest cloud computing companies, which means it passed their rigorous tests. In the third quarter alone, about 1 million units of the Mozaic HAMR shipments were shipped out to these and other clients.

“These products address customers’ performance, durability and TCO (total cost of ownership) needs at scale to continue supporting demand for existing use cases such as social media video platforms as well as growth driven by new AI applications,” Mosley said. “AI is transforming how content is being consumed and generated, increasing the value of data and storage, and Seagate is well positioned for continued profitable growth.”

For the fiscal second quarter, Seagate is calling for revenue of $2.70 billion and adjusted EPS of $2.75 – both up significantly from Q1.

Slew Of Price Target Raises

Seagate got a slew of price target upgrades on Wednesday, with Morgan Stanley and Baird boosting it to $270 per share, and Mizuho raising it to $290 per share, to name a few. That suggests 3% to 11% growth from the current share price of $260 per share.

The median price target is $267 per share, which would suggest 2.5% growth.

Seagate’s P/E ratio has risen to 37, but with the type of growth it expects, the forward P/E is a reasonable 25.

Considering Seagate’s competitive advantages, its dominance in the market, its position in a booming industry and its reasonable valuation, Seagate is an extremely attractive option.

Its results even lifted the stock of its rival, Western Digital, by 12%. Western Digital reports its earnings on Thursday, October 30.

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