Nvidia has been one of the top artificial intelligence (AI) stocks on the market over the past three years, with shares rising by an incredible 1,220%. However, 2025 wasn't as lucrative as the previous two years for its investors.
Though Nvidia rose nearly 39% in 2025, it was outpaced by many other companies benefiting in different ways from the AI boom -- among them, Seagate Technology (STX 2.27%). Shares of the manufacturer of digital storage devices such as hard-disk drives (HDDs) and solid-state drives (SSDs) are up by a remarkable 225% in the past year.
Let's consider what fueled that incredible rise and assess whether Seagate stock has room to fly higher in 2026.
Image source: Getty Images.
Seagate is benefiting from terrific data center storage demand
Seagate gets 80% of its revenue from selling data center storage products that are deployed by cloud computing companies and enterprises, and management anticipates robust data center demand for the next couple of years.
NASDAQ: STX
Key Data Points
On the October earnings call, management said that AI-driven demand for HDD storage is so strong that its production capacity for 2026 is close to sold out. What's more, CEO William Mosley said that the "longer term agreements that we have with our global data center customers provide clear visibility through calendar 2027, reinforcing our view that these favorable demand conditions will persist."
Market research firm IDC estimates that global data generation could increase by more than fivefold between 2020 and 2028, driven by the growing usage of AI applications. As a result, the need for data center storage could more than double between 2024 and 2028, sending Seagate's addressable market in this segment from $13 billion in 2024 to around $23 billion by the end of the forecast period.
At the same time, Seagate is benefiting from a favorable pricing environment. Its production capacity for this year is largely committed, and this is an industrywide phenomenon. The memory shortage that's emerging due to robust AI-driven demand is boosting prices of storage chips. The contract price of HDDs jumped an estimated 4% in the fourth quarter, as reported by Tom's Hardware.
This trend could continue in the new year, paving the way for more price hikes. So, it won't be surprising to see the outstanding improvements in Seagate's revenue and earnings continue this year.
The company reported a 21% year-over-year increase in revenue in the first quarter of its fiscal 2026 (which ended on Oct. 3) to $2.63 billion. Its non-GAAP operating margin jumped by almost 9 percentage points o 29%. As a result, its earnings shot up by 65% from the year-ago period to $2.61 per share.
Analysts are forecasting a 42% increase in Seagate's earnings in the current fiscal year to $11.52 per share, followed by healthy double-digit percentage increases over the next couple of years as well.
STX EPS Estimates for Current Fiscal Year data by YCharts.
The stock isn't expensive even after its rally
Seagate is trading at 25 times forward earnings. This is in line with the tech-heavy Nasdaq-100 index's forward earnings multiple. However, the pace of Seagate's earnings growth suggests that it could be trading at a premium to the index in the future. After all, Seagate's bottom-line growth in its current and upcoming fiscal years will be significantly higher than the estimated average earnings growth of companies in the S&P 500 index, which is why the market is likely to reward Seagate stock with a premium valuation.
If Seagate indeed achieves $15.15 per share in earnings in its next fiscal year (which will begin in June) and trades at even 30 times earnings at that time (a premium justified by its above-average growth), its stock price could hit $455. That suggests potential gains of 48% from current levels, indicating that this AI stock could deliver impressive gains over the next year and a half.
