Shares of Seagate Technology Holdings plc fell in premarket trading on Wednesday even after the hard-drive maker reported record fiscal first-quarter results and issued guidance above Wall Street expectations. The stock slipped about 4% to around $644, despite a strong rally that has lifted shares more than 140% year to date.
For the September quarter, Seagate reported revenue of $4.23 billion, compared with analyst estimates of about $4.15 billion. Adjusted earnings per share came in at $7.68, above expectations of $7.45. The company also posted a gross margin of 57.8%, operating cash flow of $1.7 billion, and free cash flow of $1.5 billion.
Seagate's outlook for the December quarter also exceeded forecasts, with revenue guidance of about $4.8 billion and adjusted EPS of $9.20, versus consensus estimates of roughly $4.55 billion and $8.66. The revenue guidance implies about 70% year-over-year growth and 13% sequential growth.
Despite the strong numbers, investors focused on a moderation in shipment growth and the trajectory of gross margins. Wedbush Securities analyst Matt Bryson pointed to slowing shipment growth and an implied gross margin guide near 60% as possible reasons for the negative reaction, describing the slowdown as cyclical after an exceptionally strong previous quarter.
Higher capital spending also drew attention. Seagate reported $211 million in capital investments for the quarter, above the $202 million analysts expected, though still within the company's long-term target of 4% to 6% of revenue. CFO Gianluca Romano noted that some external component costs are much higher than a year ago, partially offsetting internal cost savings.
Analysts remained broadly positive on the longer-term story. Evercore ISI reiterated an Outperform rating with a $1,000 price target, while Baird raised its target to $1,350 from $1,080 and kept an Outperform rating, implying more than 100% upside. Baird attributed the stock's decline to a one-quarter slowdown in exabyte growth driven by a product transition and expects growth to reaccelerate in the December quarter. Morgan Stanley earlier this month raised its price target to $1,200 from $1,187, citing similarities between the hard-drive market and the memory market before an AI-driven surge.
