Soaring NAND flash prices are creating a structural tailwind for the Hard Disk Drive (HDD) market. Seagate Technology's CEO, Dave Mosley, stated during a Bank of America Securities investor call that rising NAND prices are prompting customers to re-evaluate storage architectures, strengthening HDD's comparative advantage in Total Cost of Ownership (TCO), and that the company still has significant room for gross margin expansion. Mosley disclosed that Seagate has completed certification for its first-generation HAMR product, Mozaic 3, with all targeted Cloud Service Providers (CSPs). Furthermore, two customers have already certified the second-generation product, Mozaic 4, which offers 4TB per platter and a maximum capacity of approximately 44TB per drive. He noted that global annual demand for nearline HDDs is rising from 1.5 zettabytes (ZB) towards about 2 ZB, a volume exceeding four times the total NAND storage capacity in all data centers, a level of demand that simply cannot be met by NAND alone. Regarding profitability, data from Bank of America Securities shows Seagate's incremental gross margin continues to exceed 70% (year-over-year basis), with the company having dual pathways for improvement through pricing increases and cost reductions. Analyst Wamsi Mohan pointed out that based on his tracking, current secondary market prices for HDDs have reached $20 to $25 per TB (some being refurbished drives), while Seagate's current pricing is around $14 per TB, indicating clear room for price increases. Supported by these assessments, Bank of America Securities maintains its Buy rating on Seagate and raised its 12-month price target from $84 to $90. This target is based on an expected 2027 EPS of $29.28, applying a 31x multiple, up from a previous 29x, to reflect increased confidence in the sustainability of demand and pricing stability.

NAND Price Increases Highlight HDD's Competitive Edge Mosley clearly stated that HDDs continue to offer superior TCO compared to NAND, and this advantage has become even more pronounced with the recent sharp rise in NAND prices. He noted that NAND pricing trends have led customers to proactively seek more performance support from Seagate. Seagate already possesses dual-actuator drive capability, which can technically be scaled to four actuators, allowing it to meet some high-performance workloads that previously favored NAND. In terms of scale, data cited by Mosley shows global annual nearline HDD demand is currently about 1.5 ZB and is expected to soon increase to 2 ZB, more than four times the total NAND capacity in global data centers. He believes the mainstream data center storage architecture of "a small amount of front-end memory with HDDs at the back-end" is now highly entrenched and "this architecture will be around for a long time." He also pointed out that market discussions often overlook the substitution relationship between NAND and DRAM, focusing excessively on HDDs, when in fact HDD's irreplaceability in high-capacity storage scenarios is more prominent.

Dual Engines for Gross Margin: Pricing and Cost Synergy Bank of America Securities data indicates Seagate's incremental gross margin remains above 70%, with the company having both pricing and cost levers to expand margins. On pricing, Mosley stated that price increases will be implemented in a stable, measured manner, unlike the sharp quarterly jumps seen in NAND. Wamsi Mohan noted that the price per TB is expected to exceed $20 over time, and secondary market transactions have already been recorded at $20-$25, indicating market acceptance for higher pricing. On the cost side, Seagate's core advantage lies in its shared platform architecture across product generations. When transitioning from 3TB to 4TB and 5TB per platter, most non-core components do not need to be changed, effectively lowering technology iteration costs and supply chain risks. Mosley stated that with each generational capacity leap in HAMR technology, the company achieves a better cost structure per TB and already sees a technical path to over 10TB per platter. Bank of America forecasts Seagate's operating margin will rise from 21.1% in fiscal 2025 to 47.4% in fiscal 2028.

HAMR Adoption Accelerates, Technology Roadmap Clear The commercialization of Seagate's HAMR technology is entering an acceleration phase. Mosley disclosed on the call that Mozaic 3 has completed certification with all planned CSPs, while the second-generation product, Mozaic 4 (4TB per platter, ~40-44TB per drive), has been certified by two customers—a recent development. He expects the third-generation product with 5TB per platter to be available by the end of the next calendar year and has shared the related technology roadmap with customers to support their concurrent data center planning. Mosley stated that the certification pace for HAMR products is nearing the efficiency of mature magnetic recording products, with customers' initial technical concerns largely resolved. New generations of products are now going through certification testing as part of the regular process. He believes the S-curve for HAMR technology is still ascending, with internal photonics technology (key to driving higher capacity per platter) continuing to see breakthroughs, and technological evolution will not stop at 10TB per platter. Regarding operational flexibility, Mosley noted that the shared platform architecture gives Seagate strong reconfiguration capabilities in the face of demand fluctuations. If a customer reduces orders for high-capacity drives, the company can use the same heads and disks to quickly reconfigure production to medium or low-capacity products to meet market demand with a better cost structure.

Demand Structure: Spreading from Hyperscale to Enterprise and Edge Mosley characterized current HDD demand as structural growth and explicitly stated the company has not observed any inventory hoarding, with shipped drives confirmed to be deployed in live data center operations. He noted that over 25% annual storage capacity growth is a massive number, and from the company's perspective, this growth rate could persist for the next five years. The drivers of demand are multi-dimensional: continued explosive growth in video content; large language model inference requiring access to massive unstructured datasets; robotics and physical AI training needing real-time sensor data; and rising storage needs for data snapshots and model checkpoints in AI decision processes. Mosley also pointed out that CSPs storing video content across regions and in multiple formats (for different screen sizes and resolutions) further amplifies the number of copies and total storage volume. Regarding customer structure, Mosley stated that beyond hyperscale cloud providers, demand from traditional enterprise data centers and edge applications has shown a clear recovery over the last two quarters, consistent with the company's prior quarterly commentary. He believes the penetration of unstructured workloads to the edge—whether driven by sovereign data considerations or low-latency requirements—will continue to open incremental space for HDDs in the edge market, a demand still in its early stages.

Deleveraging Nearing Completion, Buyback Cycle Approaches Mosley stated that the company's focus this year has been debt optimization, which is nearing completion. He expects that, assuming a stable market environment, the focus of capital returns next year will shift towards shareholders, with the potential for increased buyback activity. He also noted that capital expenditures will remain at 4% to 6% of revenue, primarily for upgrading manufacturing tools and enhancing areal density capabilities, with mergers and acquisitions expected to remain small, complementary deals. Financially, Bank of America forecasts Seagate's free cash flow will surge from $818 million in fiscal 2025 to $2.717 billion in fiscal 2026, and further to $4.163 billion in fiscal 2027, providing ample ammunition for future buybacks. The firm expects EPS to grow from $8.11 in fiscal 2025 to $14.94 in fiscal 2026 and $24.56 in fiscal 2027, implying forward price-to-earnings ratios of approximately 54x and 33x, respectively, based on the current stock price.