As shares of Seagate Technology struggle at the bourses, JPMorgan sees the pullback as a buying opportunity, citing strong demand trends and improving fundamentals in the data storage market.
The stock fell about 7% during the session, cooling off from recent highs after having more than quadrupled over the past 12 months.
The stock is down by over 5% over the last month, but has jumped by over 320% in the last year.
JPMorgan initiated coverage with an “Overweight” rating and a price target of $525, implying significant upside from current levels.
Demand surge driven by AI infrastructure
Seagate, along with its main rival Western Digital, has benefited from surging demand for high-capacity hard drives used in data centres.
The rise of artificial intelligence workloads has led to a sharp increase in the need for data storage, particularly for high-margin, high-density drives.
Analyst Samik Chatterjee said the firm’s financial forecasts point to upside relative to consensus estimates for 2027, driven by stronger pricing and sustained investment in cloud infrastructure.
The brokerage noted that its valuation assumptions remain conservative, based on a price-to-earnings multiple of 22 times projected 2027 earnings.
This compares with an average multiple of around 25 times for companies exposed to AI-driven growth, leaving room for further re-rating if market conditions improve.
Industry structure supports pricing power
A key pillar of the bullish outlook is the structure of the hard-disk drive market, which is effectively an oligopoly dominated by Seagate and Western Digital.
Together, the two companies control an estimated 80–90% of global supply.
Unlike previous cycles, where overcapacity often led to price declines, both firms are now focusing on increasing storage density rather than expanding unit shipments.
This approach is expected to maintain supply discipline and support pricing power.
Chatterjee said this shift could prolong the current upcycle in the sector, allowing companies to sustain higher margins and valuations compared to historical levels.
Margins and earnings growth seen accelerating
JPMorgan expects Seagate’s gross margins to expand significantly, reaching around 50% by 2027, compared with a historical range of 25% to 30% before the recent AI-driven demand surge.
The brokerage forecasts revenue growth at a compound annual rate of about 25% over the medium term, with operating earnings expected to grow by more than 50% annually.
This combination of margin expansion and revenue growth is seen as a key driver of the stock’s potential re-rating.
Technology transition adds to upside
Another catalyst highlighted by analysts is Seagate’s transition to heat-assisted magnetic recording, or HAMR, a next-generation technology designed to increase storage capacity.
The company has already qualified its Mozaic 4 platform, capable of delivering roughly 40 terabytes per drive, with a second customer.
JPMorgan expects faster-than-anticipated adoption of this technology to support further growth in storage volumes.
However, risks remain.
Analysts cautioned that a slowdown in cloud capital expenditure, constraints in production capacity, or a faster shift toward flash-based storage could weigh on the outlook.
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