Morgan Stanley cuts Seagate stock price target but sees 72% upside

As mentioned in my previous Seagate BofA coverage, I spend a good part of my day on my computer. And between work documents, trading journals, downloaded reports, photos, and backups, I’m constantly adding new files.

I hardly notice how much space they’re taking up, but I know they’re slowly eating into my storage.

While looking into Seagate today, I can’t help but wonder how much more space I’ll need a few years from now. And if I’m using this storage on my own, imagine what businesses and AI data centers need.

Research firm TrendForce said AI is generating so much data that storage infrastructure is struggling to keep up. Demand for nearline hard drives, which are widely used in data centers, has surged beyond what manufacturers can produce. 

Western Digital is a Seagate competitor and has validated the massive demand. During the company’s second-quarter earnings call, CEO Irving Tan said Western Digital had already sold out its hard drive capacity for 2026, according to a transcript published by Investing.com. 

The shortage is also affecting everyday buyers, with external drive deliveries potentially taking six to 10 weeks longer. According to TrendForce, Western Digital raised hard drive prices, citing unprecedented demand.

Seagate (STX) is one of the companies caught in the middle of this growing storage crunch. In its Oct. 27 fiscal first-quarter 2027 results, it reported $4.2 billion in revenue, non-GAAP EPS of $7.68, and a record $1.5 billion in free cash flow. 

CEO Dave Mosley said long-term customer visibility points to a “multi-year growth phase.” However, Seagate shipped less storage than Wall Street expected.

Also Read: BofA sees 80% upside for Seagate stock, but Micron shares look cheaper

Seagate’s reset quarter: fewer exabytes, higher prices

In a note shared with me at TheStreet, Morgan Stanley cut its price target to $1,148 from $1,200. It kept an Overweight rating and a Top Pick designation. The bank sees about 72% upside from the $667.85 close on Oct. 27. BofA sees 80% upside, TheStreet reported.

Here is the miss. Nearline exabytes, the measure of how much data Seagate’s data center drives hold, hit a record 198 but grew just 2% from the prior quarter, short of Morgan Stanley’s 6%. 

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December-quarter EPS guidance came in below the $9.50 to $10 some big investors hoped for, though 6% above consensus. Morgan Stanley lowered its fiscal 2027 and 2028 earnings-per-share estimates to $40.84 and $76.64, respectively.

The shares have still returned 154.27% year to date and 214.84% over one year, according to Yahoo Finance. They trade at 8.3 times Morgan Stanley’s 2028 EPS, near the low end of their historical valuation range.

Seagate shipments slipped while prices jumped

Seagate traded a few bits for better pricing. Price per terabyte rose 16% from the prior quarter because demand outran supply. Management says customers are prioritizing storage access over price, with no signs of demand destruction. 

Morgan Stanley says technology, yield, and data center power challenges did not hold shipments back. A shift toward smaller enterprise drives and staging new products for customer testing explain much of it.

Related: Seagate’s booming business comes with an unexpected twist

The new high-capacity storage products use HAMR, or heat-assisted magnetic recording, which lets drives hold more data on the same disks. Seagate’s Mozaic 4 line offers 40-terabyte drives, and more cloud and enterprise customers are expected to qualify them in the coming months.

Management expects a meaningful jump in exabytes in December, the key proof point, though it gave no number.

Customers are locking in supply. Most of Seagate’s data center exabytes are allocated through 2028, and customers are signing long-term agreements through 2030.

Rising costs were another disappointment. Cost per terabyte increased 3% from the previous quarter as memory and other externally sourced components became more expensive.

That’s a sharp reversal from a year earlier, when costs were falling by roughly 15%. Pricing offset it, with non-GAAP gross margin at 57.8%, up 5 points, and management guiding to further gains through fiscal 2027.

Management also dismissed headlines that Seagate and Toshiba were competing for TDK’s hard drive business, which Bloomberg reported Oct. 6 and both companies pushed back on. 

Seagate says even a doubling of Toshiba’s output would win it only a few points of share. It plans about 25% annual exabyte growth on largely flat unit production, which Morgan Stanley reads as supply discipline.

Seagate’s cost per terabyte increased 3% from the previous quarter as memory and other externally sourced components became more expensive.

NurPhoto / Getty Images

Morgan Stanley sees $1,148 as demand outruns supply

Cash is the cushion. Seagate retired $1.2 billion of debt, repurchased $400 million of shares, and raised its dividend about 3% to $0.76.

Buybacks should step up in the March 2027 quarter, and Morgan Stanley says fewer shares should lift EPS. About $4.4 billion remains authorized.

The $1,148 target is 15 times 2028 EPS of $76.64, against the $59.38 Wall Street consensus. The bank’s verdict is that the story has bent in the short term but is not broken.

For investors, December shipments will show whether Seagate can grow volume without giving up price.

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