Though Seagate Technology PLC (NASDAQ:STX) witnessed a revenue decline in 2023, Wedbush sees the data storage firm’s overall performance as a sign of the recovery investors have been eagerly awaiting, particularly in relation to mass capacity shipments and hard disk drive (HDD) margins.
But the investment thesis around Seagate remains less a bet on an industry upcycle than a wager that it can achieve “technological superiority” through its Heat Assisted Magnetic Recording (HAMR) IP.
HAMR uses magnetic technology that allows data bits to become smaller and more densely packed, while remaining magnetically and thermally stable. In simple terms, HAMR is at the forefront of data storage efficiency.
Seagate’s killer app is “allowing the company to escape the boom/bust cycles that have long characterized the HDD industry”, said Wedbush analysts.
Key developments in Seagate's HAMR technology include ongoing qualifications with numerous Cloud Service Providers (CSPs) for its Mozaic 3+ product, with a volume production ramp beginning this quarter.
The company plans to ship approximately one million HAMR drives in the first half of 2024, and by the end of the calendar year 2024, it expects most US CSPs and several international customers to have qualified its drives.
Additionally, Seagate is advancing its capabilities by working on developing internal laser production, which could augment or compete with external vendors.
“We have been getting more positive/confident around Seagate's execution on HAMR (and last night's earnings does nothing but reinforce our incremental optimism),” said analysts.
Even though 2024 guidance remains relatively modest, “if Seagate can execute to its areal density roadmap, its results in 2025 should benefit substantially as HAMR's areal density advantage grows, creating a significant opportunity for Seagte to capture a meaningful portion of the financial benefit HAMR offers”.
Wedbush did warn that much of this HAMR premium is already baked into Seagate’s share price, thus analysts remain neutral on the stock with a $100 price target against an $88.69 publication price.