Storage solutions provider Seagate Technology (STX 0.24%) has registered an outstanding rally on the stock market in 2025, rising an incredible 73% year to date and beating the Nasdaq Composite index's 7% return by a massive margin.
This impressive performance can be attributed to robust growth in the demand for storage in data centers running artificial intelligence (AI) workloads. Let's dig into how AI is fueling Seagate's growth and see how it could pave the way for more upside in this technology stock.
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Seagate Technology is growing at an incredible pace, and it can sustain its momentum
Seagate Technology's revenue in the first nine months of its fiscal 2025 increased almost 43% year over year to $6.65 billion. Even better, the company's non-GAAP (adjusted) income from operations has jumped more than fourfold during this period, thanks to higher margins.
NASDAQ: STX
Key Data Points
Management attributes this fantastic growth to the healthy demand for mass capacity storage in the cloud, which has created a tight supply environment and led to an increase in prices. Management remarked on the company's April earnings call that the growing storage demand "aligns with the cloud capex investment cycle and ongoing build-out of data center infrastructure to support AI transformations."
Specifically, 90% of the storage in large-scale data centers is done with hard drives because of their cost efficiency and scalability. With the storage requirement in data centers expected to more than double between 2024 and 2028, Seagate estimates this could push annual revenue for the data center storage market to $23 billion by 2028, up from $13 billion last year.
Seagate is in a solid position to make the most of this growth opportunity considering its 40% share of the global storage market. Not surprisingly, Seagate's outlook for the recently concluded fiscal fourth quarter was an impressive one. The company guided for $2.4 billion in revenue at the midpoint of its range, along with $2.40 per share in earnings.
The top-line guidance is good for a 27% year-over-year increase, while earnings are on track to more than double from the prior-year period's reading of $1.05 per share.
A solid jump in the company's earnings points toward more gains
For the full fiscal year, Seagate could grow revenue 38%, while its adjusted earnings will jump more than sixfold to $7.91 per share. Importantly, the company should be able to sustain this momentum, thanks to the tailwinds discussed above, and that sets the stage for strong returns.
Data by YCharts.
The potential earnings growth combined with Seagate's incredibly attractive valuation makes the stock a no-brainer buy. It is now trading at just 21 times trailing earnings and 16 times forward earnings estimates. The Nasdaq 100 index, meanwhile, has an average forward earnings multiple of 29, which means the stock trades at a significant discount to the tech sector overall.
Investors looking for a fast-growing AI stock that's also reasonably priced would do well to buy Seagate before it flies higher.
