Seagate stock jumps as Wells Fargo upgrade boosts AI storage outlook

Seagate Technology STX shares rose on Friday after Wells Fargo upgraded the data storage company to an Overweight rating.

The analyst cited growing confidence in its long-term earnings potential and sustained demand for hard-disk drives (HDDs) driven by artificial intelligence infrastructure.

The upgrade comes after Seagate shares pulled back in recent weeks amid concerns over the sustainability of AI-related spending, despite the stock remaining up more than 500% over the past 12 months.

Rival Western Digital (NASDAQ: WDC), which has also benefited from the AI infrastructure boom, is up nearly 800% over the same period.

Wells Fargo upgrades Seagate, raises earnings outlook

Wells Fargo analyst Aaron Rakers upgraded Seagate from Equal Weight to Overweight and raised the firm's price target to $1,100 from $900.

"With the recent market pullback and increasing confidence in what we view as a path to plus-$50 earnings-per-share and significant (capital) return capacity ahead, we upgrade STX to Overweight with a $1,100 price target," Wells Fargo analyst Aaron Rakers said in a note for clients.

Rakers also lifted his price target on Western Digital to $730 from $575 while maintaining an Overweight rating.

The analyst said he remains "positive on HDDs" ahead of June-quarter earnings and increased estimates for both companies.

He projects Seagate's annual earnings per share will rise from $21.60 this year to $53.69 by 2028.

Rakers expects both storage companies to emphasize "extending demand visibility" through long-term purchase agreements with customers.

AI infrastructure spending supports storage demand

Seagate said during its latest earnings call that the top three global cloud service providers have nearly doubled their Remaining Performance Obligations (RPO) to a record $1.1 trillion, reflecting growing long-term commitments for cloud and AI infrastructure.

The company said the expanding pipeline of contracted revenue should support demand for its high-capacity storage products.

Seagate also highlighted strong momentum for its Mozaic platform and Heat-Assisted Magnetic Recording (HAMR) technology, with its 3TB-per-disk HAMR drives shipping to its first cloud service provider during 2025.

According to the company, AI applications are driving higher data creation, longer retention requirements and greater reliance on historical datasets, increasing demand for cost- and energy-efficient HDDs.

Seagate said its strategy is built around durable storage demand, a strong technology roadmap and disciplined execution.

It also raised its annual revenue growth outlook to at least 20%.

The company added that nearline storage products account for about 90% of exabyte shipments, with production capacity largely allocated through 2027 under long-term supply agreements, build-to-order contracts and value-based pricing arrangements.

Western Digital and Micron also benefit from AI trend

Western Digital continues expanding its Platforms business to serve enterprise and mid-scale cloud customers while increasing adoption of its UltraSMR technology.

The company said three of its largest customers have already adopted UltraSMR, with management expecting all major customers to qualify the technology by the end of calendar 2027.

Micron Technology is also strengthening customer commitments through long-term supply agreements across data center, consumer and automotive markets.

The memory-chip maker said it has signed 16 strategic customer agreements covering roughly 20% of DRAM volumes and one-third of NAND volumes during the contract period.

Fourteen of those agreements represent approximately $100 billion in cumulative minimum contract revenue and include projected customer deposits and financial commitments totaling $22 billion, including about $18 billion in cash deposits.