AI-driven data storage demand is reshaping the hard disk drive (HDD) market at a pace surpassing expectations. Fueled by this trend, Seagate Technology PLC reported quarterly results that far exceeded projections, propelling its stock to a historic high on Wednesday.

For the fiscal first quarter ending September, Seagate posted adjusted earnings per share of $2.61, up 65% year-over-year and significantly above the FactSet consensus estimate of $2.40. Revenue rose 21% to $2.63 billion, also topping the $2.55 billion market expectation, reflecting robust demand from AI and data center markets.

According to sources, Morgan Stanley noted in a report that this outperformance stemmed from favorable pricing and a shift toward higher-capacity HDDs. Data showed that over 80% of nearline HDDs shipped during the quarter had capacities of 24TB or higher.

Looking ahead, Seagate forecasts current-quarter revenue of $2.7 billion (midpoint), again surpassing analysts' $2.67 billion estimate. CEO Dave Mosley told analysts that AI is fundamentally transforming HDD demand, with high-capacity drive production contracts for cloud markets largely booked through 2026 and "clear" visibility into 2027 demand.

The strong results and optimistic outlook ignited market enthusiasm. Seagate shares surged 19.1% to close at $265.62 on Wednesday, a record high. Year-to-date, the data storage giant's stock has rallied over 200%. Competitor Western Digital also gained 15% on the news.

**Earnings Beat Across the Board, Margins Steal the Spotlight** Seagate's Q1 FY2026 revenue reached $2.63 billion, up 21.3% year-over-year and 3% above Morgan Stanley and consensus estimates. This growth was primarily driven by data center demand, with nearline HDD shipments hitting 159 exabytes, a 39% annual increase.

Morgan Stanley highlighted that the standout metric was gross margins. Non-GAAP gross margins hit 40.1%, 150 basis points above expectations, achieving the company's 40% target 2-4 quarters early.

Wedbush analyst Matt Bryson noted Seagate's margin outperformance provided upward momentum for shares, stating: "The expectation was for Seagate to reach 40% gross margins by calendar year-end, but they achieved it a quarter early."

More importantly, Seagate's Q2 guidance implies ~41% gross margins. Bryson added: "Assuming management remains conservative as usual and execution stays on track, we wouldn't be surprised if Seagate ultimately exceeds this projection."

**Analysts Bullish: Market "Desperate for Storage"** Seagate management reiterated there are no industry plans to add HDD assembly or head/platter capacity. "Our strategy for capacity growth comes through product transitions," Mosley clarified, "We're not actually increasing unit capacity."

Post-earnings, Wall Street analysts raised price targets and reaffirmed optimism about AI-driven storage demand. Morgan Stanley lifted FY2026-27 net profit estimates by 5-7%, increasing its target from $265 to $270 while maintaining an "Overweight" rating. The new target assumes $15.40 EPS in FY2027 at a 17.5x P/E multiple, with analysts noting their model remains "conservative" despite upward revisions.

Evercore ISI's Amit Daryanani reiterated an "Outperform" rating with a $330 target, stating: "Seagate is well-positioned to profitably capture growing demand for high-capacity storage from AI workloads."

Barclays' Tom O'Malley described the results as evidence the market remains "desperate for storage." While maintaining a "Neutral" rating, he raised his target from $200 to $240. Wedbush's Bryson also reaffirmed "Outperform," boosting his target from $260 to $290.