How Much Should One Number Worry Seagate Technology Stock Holders?
Seagate Technology (STX) converted 34.7% of its revenue into operating profit over the last twelve months, up from 21.1% a year earlier. Investors should pay close attention to this operating margin because the stock currently trades at about 58 times earnings, compared to 21.5 for the S&P 500. A valuation that high likely assumes current margins are here to stay. What changed at Seagate to produce a jump that large?
Image from PixabaySeagate Raised Prices While Storage Ran Short
During the fiscal Q4 2026 earnings call on July 28, 2026, management credited a long-term pricing strategy and an improved product mix for the wider margin. Executives noted that the gap between supply and demand was a little bigger than it had been a few quarters earlier. Customers were committing to new contracts at prices higher than some of their existing agreements.
Data centers drive most of this demand. Out of Seagate’s $3.6 billion in total revenue during the June quarter, data centers accounted for $2.9 billion. Data center revenue grew 57% from a year earlier.
Has Seagate Been This Profitable In The Last Decade?
Not in the past ten years. Seagate’s current operating margin is the highest it has posted during that period. Just three years ago, the margin sat at 0.8%, leaving the company with almost nothing from its sales. Today, Seagate keeps far more of each sales dollar than the broader market, given that the S&P 500 maintains an operating margin of 18.6%.
In dollar terms, Seagate generated $4.2 billion of operating profit on $12.2 billion of revenue over the last twelve months. If the company was still operating at the margins of a year earlier, that same revenue would have yielded about $2.6 billion.
Seagate shares returned 222% over the twelve months through October 6, compared to 17.8% for the S&P 500. So the price likely assumes Seagate can keep a level of profit it has not sustained at any point in the past decade.
Can Seagate Keep Its Pricing If Toshiba Adds Supply?
Seagate’s contracts say it can maintain pricing through calendar 2027. On the July 28 call, management noted that long-term supply agreements define both product configuration and pricing for all of calendar 2027. The company also confirmed that the vast majority of its nearline storage volume is allocated to customers into calendar 2028.
Yet a rival plans to introduce new supply. Toshiba intends to double its production capacity for AI data center storage in fiscal 2027, according to a report from Nikkei. On October 2, 2026, shares of both Seagate and Western Digital fell as investors worried this added capacity could threaten the pricing power both companies enjoy.
While a fall in operating margin remains a real risk for Seagate shareholders, the threat is not immediate. The company has contracts that define pricing through calendar 2027, and Toshiba’s capacity expansion is still only a plan. The first real test arrives when Seagate reports its September quarter. Management guided to an adjusted operating margin of around 50% for that one quarter, based on the midpoint of its revenue guidance. A result clearly below that guide would be the first sign that pricing is losing steam.
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