Meet the Brilliant Stock That Is Racing Into the AI Infrastructure Boom in 2025. Is It a Buy, Hold, or Sell From Here?

Key Points

• Seagate is a major beneficiary of increasing demand for mass-capacity storage.

• Its next-generation products are increasingly being adopted by cloud service providers.

• Despite significant share price gains, Seagate still trades at a reasonable valuation.

• 10 stocks we like better than Seagate Technology Plc ›

Seagate Technology (NASDAQ: STX) is emerging as one of 2025's most unexpected winners from the artificial intelligence (AI) boom. While most attention has been focused on semiconductor and enterprise software players like Nvidia and Palantir Technologies, Seagate has been quietly playing a crucial role in global AI infrastructure buildout -- by offering solutions for mass-capacity storage.

That strategy is now driving record revenue, margins, and free cash flow. Let's see what this could all mean for investors.

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Business drivers

The ongoing AI boom is driving demand for cutting-edge GPUs and advanced AI models. These models need massive amounts of data that must be stored, replicated, and retrieved across global cloud and edge networks. Additionally, new data is being generated continuously, either from traditional compute workloads or AI-supported applications.

The global data storage market size is estimated to grow from $255.3 billion in 2025 to $774 billion in 2032. Seagate is proving to be a major beneficiary of this surge. The company's heat-assisted magnetic recording (HAMR) hard drives, branded as Mozaic, have dramatically improved storage density -- translating into higher energy efficiency and lower costs. HAMR is now being increasingly adopted by major cloud service providers.

The company's results for the fourth quarter of fiscal 2025 (ended June 27, 2025) highlight this momentum. Revenue jumped 30% year over year to $2.4 billion, while non-GAAP (adjusted) gross margin climbed 700 basis points to 37.9%. Non-GAAP operating margin expanded 890 basis points to 26.2%, and earnings per share soared 146% to $2.60. For the full fiscal year, Seagate delivered $9.1 billion in revenue and non-GAAP EPS of $8.10.

Strong demand visibility

Demand for Seagate's offerings continues to be strong. In its recent earnings call, management highlighted that the company's build-to-order pipeline (pre-booked customer orders, but produced as needed) for nearline hard drives (high-capacity hard disk drives designed for infrequently accessed enterprise data and used mainly in data centers) is already booked through mid-2026, with visibility extending into the second half of 2026. This kind of demand visibility shows that hyperscale customers are locking in supply early as they accelerate AI data center buildouts.

Edge data centers are also driving the need for localized data storage solutions. As more data is created at the edge (from factories, hospitals, and smart cities across a range of devices), it is being copied and stored in multiple places to train and run AI models. Companies are holding on to larger amounts of data for longer to support checkpoints (periodically saving versions of AI models while training) and inferencing (real-time deployment of AI models).

With half of the world's data centers in just four countries and new data sovereignty rules emerging, demand is rising for localized mass-capacity hard drives. As a result, storage trends at the edge are starting to mirror those in the cloud. Seagate's high-capacity drives are well positioned to be adopted in these edge data centers due to their lower power use, smaller space needs, and lower cost per terabyte.

HAMR catalyst

HAMR is proving to be a key growth driver. Three major cloud service providers have already qualified Seagate's Mozaic 3 drives, clearing the way for volume deployments. The company has also started qualifying its Mozaic 4 platform, which holds 4 terabytes per disk. Mozaic 4 can support cloud workloads up to 44 terabytes per drive (comprising multiple disks), as well as lower capacity configurations suited for edge workloads.

Management expects volume production of the Mozaic 4 to commence in the first half of calendar year 2026. Shipments of HAMR-based drives are expected to surpass traditional Perpendicular Magnetic Recording (PMR) hard drive volumes by the second half of calendar year 2026.

HAMR is also expected to improve overall gross margin as it scales, since it offers higher capacity at a lower cost per terabyte. Since HAMR helps clients reduce their total costs, Seagate does not need to incentivize the transition from traditional hard disk storage. Thus, the company will continue to enjoy pricing advantages.

Seagate is also working on 5-terabyte-per-disk technology and is targeting a launch in early 2028. The company also plans to show 10 terabytes per disk in lab tests around the same time.

Strong cash generation and capital returns

Seagate also boasts of impressive cash flows. In the fourth quarter of fiscal 2025, free cash flow nearly doubled sequentially to $425 million. The company ended fiscal 2025 with $2.2 billion in cash and equivalents and gross debt of $5 billion. Management maintains discipline in capital expenditures (capex) and invested just 3% of revenue or $265 million in fiscal 2025. The company expects capex to be a modest 4% to 6% of revenue in fiscal 2026, even as Seagate readies for the Mozaic 4 ramp-up.

Seagate is also committed to returning value to shareholders, and has returned about 75% of fiscal 2025 free cash flow to shareholders through dividends. The company also plans to resume share repurchases in the first quarter of fiscal 2026.

Valuation

Seagate's shares have gained 145% so far in 2025. Yet the stock trades at only 16.3 times earnings -- very reasonable considering its large addressable market, impressive demand visibility, and strong cash flows. Hence, although the company is exposed to execution risks, customer concentration risks, and a global minimum tax rate in the mid-teens starting in fiscal 2026, it still makes sense for long-term investors to hold a small stake in this stock.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.