There was a lot to like from Seagate’s FQ3 report, with the company reporting a material acceleration in Data Center growth, with QoQ growth stepping up from 5% in FQ2 to 12% this quarter. Pricing looked to improve this quarter with Seagate confirming a mid-single digit increase in revenue per TB this quarter, while strong demand trends and the Mozaic4+ ramp present tailwinds for pricing strength into 2027.
Mozaic4+ began volume shipments at its first two hyperscale customers in March and is expected to see an aggressive ramp through the end of calendar 2026, expected to overtake Mozaic3’s share and drive HAMR to account for a majority of exabyte (EB) shipments. Pricing and margin leverage with the new generation will likely flow disproportionately to Seagate’s bottom line, driving EPS growth at >2X the rate of revenue through the end of FY27.
Seagate believes that it is entering a period of structural growth with robust market demand, raising its longer-term annual growth forecast from the low to mid-teens to >20% over the next few years. This is underpinned by HDD’s strong value proposition of cost and energy efficiency at scale, with Seagate believing high-capacity HDDs will remain essential for data center architectures as inference, agentic AI and soon physical AI arise.
Mozaic4+ Ramping to Majority of HAMR Shipments Exiting CY26
Seagate provided some strong data points for its Mozaic HAMR drives this quarter, noting that it has shipped Mozaic drives to 75% of leading global cloud customers, and remains on track to complete its last two customer qualifications in FQ4 (the June quarter).
Mozaic4+, providing capacities up to 44TB per drive, is now qualified with the two largest CSPs, with first revenue shipments beginning in March, meaning revenue contribution was likely minimal in this quarter and will become more pronounced through year-end.
Management is expecting a “quite aggressive ramp” with Mozaic4+, projecting it to crossover Mozaic3 in share and become the majority of HAMR exabyte shipments exiting CY26. HAMR is also expected to reach 70% of nearline exabytes by the end of calendar 2027. These share and growth points are crucial as HAMR enables strong margin expansion as it scales, as Seagate can drive costs lower with Mozaic4+ with little change to its bill-of-materials vs Mozaic3:
“Cost reduction was coming from mainly 2 items. One is for sure the mix going to higher capacity drives. And second was the full utilization of our manufacturing. When I look into the future, of course, now we are full. So that part maybe will not be so important in terms of cost reduction, but our mix change continued to be very fast. We are going faster than what we were thinking on the transition to HAMR. And now that we have second generation HAMR now, we have a very good increase in terabytes per unit. And of course, this is the driver, not adding more below material to the hard disk, which is the main driver for the future cost reduction.”
Seagate also likely benefits from higher prices with Mozaic4+ (discussed in more detail in the Pricing section below), but there is also little risk to its ramp, leveraging the same number of disks and heads as Mozaic3. Thus, there is a multi-faceted growth opportunity arising with Mozaic4+ through calendar 2026 and 2027 – the potential to benefit from increased pricing power driving revenues higher, combined with a similar cost profile driving margins higher — disproportionally flowing to the bottom line. For example, current estimates through the end of FY27 (June 2027) project adjusted EPS to increase 45% to 98% YoY, growing at a minimum of >2X the rate of revenue growth each quarter.
Seagate had also mentioned that it would leverage Mozaic4/5+ (4 to 5 TB per disk) to produce lower capacity products for enterprise data centers and edge IoT applications, though CEO William Mosley noted that “demand for Mozaic 4 at the high end is so high right now that as we look forward” that it may not be worthwhile to pursue 4+ at 20TB yet. Seagate will monitor this market over the coming three to four quarters for potential entry.
Supply Allocated through CY27
In our prior analysis for Discovery members in the first week of March, Seagate: Slow QoQ Data Center Growth, 2027 Capacity Under Discussions, we discussed how Seagate’s capacity for calendar 2026 was sold out and how the company was beginning to accept orders for calendar 2027 over the coming months.
In fiscal Q3’s report, Seagate provided a critical update on this front, noting now that its nearline exabyte supply (ie. for data centers) is largely allocated through calendar 2027 with planning discussions already underway for capacity into calendar 2028 and beyond. Management clarified that they have exabyte-scale supply agreements with nearly all major cloud and hyperscale customers, with the vast majority of nearline capacity allocated through calendar 2027.
Seagate is finalizing their build-to-order contracts for FY27, which management said enhances demand visibility by defining specific configurations and volumes for customers, along with pricing. This is quite a positive signal for the strength of demand for HDDs, considering just last quarter they had not yet started on CY2027 agreements.
Considering Seagate is already largely sold out seven quarters in advance, analysts questioned if Seagate would shift to using pre-payments to secure supply, with reports suggesting this is already being implemented by NAND suppliers such as SanDisk and Phison. Seagate said it is not currently looking at pre-payment terms, rather focusing on shipment predictability and optimizing pricing as its new products ramp, but did not rule out pre-payments at some point in the future.
Pricing Improves in Q3, Not Finalized for Build-to-Order Contracts
Q3’s call featured quite a bit of prodding from analysts over pricing dynamics, considering only one quarter has passed and Seagate has now allocated a majority of its supply through 2027 and unit volumes are not growing.
While Seagate emphasized multiple times that it will not be changing its pricing strategy and remain true to its promise of delivering predictable economics for customers, there were a few tidbits that hint that pricing will remain strong(er) moving through calendar 2026 and build off of Q3’s momentum.
Management explained that they witnessed a mid-single digit YoY increase in revenue per TB in the quarter, and expect this trend to continue, while analysts such as Bernstein’s Mark Newman implied pricing per EB seemed to accelerate mid-single digits QoQ. This likely represents a few points of acceleration from last quarter’s pricing – we had noted in our Western Digital analysis that WDC saw prices up 2-3% QoQ per TB, while Seagate was likely closer to flat as data center revenue (up 5% QoQ) only marginally outpaced exabyte growth (up 4% QoQ).
Seagate added that pricing will depend both on timing of when new contracts hit as well as product mix, such as customers shifting from one product to a newer one (ie Mozaic3 to Mozaic4+). This is the first clue that Seagate could have stronger pricing levers to pull moving through the rest of calendar 2026 and 2027, stemming from Mozaic4+.
As noted above, Mozaic4+ only began revenue shipments in late March, meaning its impact on pricing was likely minimal; commentary for similar bill-of-materials and costs as Mozaic3 but improved margins and profitability mean the new generation will very likely carry a higher ASP. Thus, the rapid ramp of Mozaic4+ to overtake 3 and account for the majority of HAMR shipments suggests strong pricing tailwinds may arise each quarter through the end of CY26 and into CY27.
On this note, JP Morgan’s Samik Chatterjee raised a tough question – “why shouldn't we see pricing maybe accelerate a bit as more new contracts come into play as you go through sort of end of 2026 into 2027, how should we think about pricing? And why should it sort of accelerate more as more new contracts come into the P&L from here on?”
CEO William Mosley explained that the first way he thinks about pricing “is what is the true demand and I think the demand is rising to your point, further out in time as we roll out of one LTA and into the next, then the market demand dictates what the economics. We talked about this a little bit in the prepared remarks about when we set exact capacity configurations, what products are qualified with what customers and therefore, what price. As we've been rolling forward, though, we have the ability to [add] just a few more drives out of manufacturing or whatever. So we can always test what that demand is and the demand keeps going up. And so we're seeing what the market price, if you will, is.”
CFO Gianluca Romano followed up by adding that Seagate is “confident in saying that we have a good opportunity to increase our profit and our revenue sequentially through the fiscal '27.” Combined, the two are essentially confirming that demand will be outpacing supply through CY27 and into CY28 (also evident within CY27 already being sold out), and that pricing power will hinge on demand. Remaining true to its stance of predictable economics means Seagate is not likely to price its customers out of the market, meaning there will not likely be 40-100% QoQ growth in prices such as what is being seen in SSDs, but that customers with the most urgent needs will likely pay more to secure supply in a tight environment.
Morgan Stanley’s channel checks earlier this month already suggest that hyperscalers are leaning into that second point. MS revealed that major hyperscalers are approaching $20 per TB for purchases in 2027 and 2028, compared to current estimates for $13-15 per TB, which the firm says suggests contract negotiations “are starting 30% higher (or more) than current estimates and nearly 20% higher than the bull case.” If true, or even directionally correct, when these new contracts begin to layer in through 2027, there is potential for sequential revenue growth in the data center to remain robust from the pricing uplift.
Analysts did poke on pricing per EB through the end of FY27 (June 2027) considering the EB-scale contracts mentioned, and if price per EB would be up low, mid or high-single digit YoY. Management said they do not guide that far ahead, but “every quarter, we'll be a little bit better and we expect revenue improvement. We expect profitability improvement. A big part of the profitability improvement is coming from pricing, but is also coming from the change in mix and the reduction costs that the 40 terabyte HAMR drive will give us.” This suggests that the ramp of Mozaic4+ over the next four to five quarters will keep pricing strength intact, especially if per TB negotiations do move ~33% higher from ~$15 to $20 for supply next year.
Translating this over to Seagate’s Data Center segment, growth meaningfully accelerated this quarter, with the segment seeing 55% YoY and 12% QoQ growth to $2.5 billion, a 27 point acceleration from 28% YoY while QoQ growth accelerated 7 points. Nearline exabyte growth of 6% QoQ and 41% YoY suggests this acceleration was likely predominantly driven by pricing.
Pricing tailwinds with Mozaic4+ share increasing through year-end, combined with the strong demand backdrop, supports strong data center growth moving forward. Assuming a similar ~80% revenue mix in FQ4, Data Center revenue would project out to 10.4% QoQ to $2.76 billion at the midpoint of the guide. At the high end of the guide at $3.55 billion, data center revenue projects to $2.84 billion, a slight acceleration to 13.6% QoQ.
Inference, Agentic and Physical AI Tailwinds to HDDs
In our WDC analysis, we covered some of the inference-based HDD demand drivers, such as multi-modal models requiring significantly large data sets to store queries and prompts, video generation, as well as autonomous vehicles and robotics needing extensive data sets to function in real-world situations.
Seagate commented on these drivers in Q3, with management expecting demand to accelerate further as AI applications move to the physical world, from autonomous vehicles and robotics to manufacturing automation. Management said this is because physical AI deployments, such as AVs, generate massive data streams from sensors and cameras, such as a single AV producing up to 4TB per hour with compliance requiring data retention (storage) times of several years. When contextualizing this across a fleet such as Waymo’s in San Francisco spanning ~1,000 vehicles, data generated could reach as much as ~3 EB per month, or ~36 EB annualized (or ~5% of Seagate’s current TTM EB shipments).
Management also commented on inference-based applications and agentic AI, noting that “inference-based applications are creating a growing need for both cloud and local storage,” and agentic AI’s need to reference large data sets to draw conclusions, or create new or unstructured data sets to work through is “where it's actually hitting the storage tiers fairly hard.” These future data and storage growth levers support Seagate’s mid-20% exabyte growth CAGR, similar to WDC’s >25% CAGR over the next five years.
The challenge here is that unit volumes are not growing – Seagate explained that unit volumes are not increasing, and will likely not “unless we see a resurgence at the edge, and that may be over a long period of time.” This shifts the emphasis to pricing and economics per TB to drive growth.
Seagate also double-clicked on the HDD versus NAND debate in future inference storage architectures (which we covered in both our prior Seagate and Western Digital analyses), as analysts questioned if the Data Center inflection stemmed from the rising cost differential between HDDs per gigabyte and NAND. Seagate emphasized that it does not see storage architectures changing much at all, and if “anything, because of the economics of what's going on right now, people are coming back to hard drives and saying, what more can you do? … And I see these architectures pretty sticky for a long, long time into the future.”
Financials
Revenue Accelerates to 44.1% YoY, Beats Estimates by 5%
Seagate's Q3 FY2026 ending March revenue accelerated sharply to 44.1% YoY to $3.11 billion, up from 21.5% YoY in Q2, marking a meaningful step-up in the growth trajectory. The company’s revenue beat estimates by a solid 5%. On a sequential basis, revenue grew 10.2% QoQ and was the fourth consecutive quarter of sequential revenue growth, underscoring Seagate's strengthening position as a primary beneficiary of robust cloud and hyperscaler demand for high-capacity hard disk drives (HDDs); management noted that this quarter marked the tenth consecutive quarter of growth from cloud customers.
For Q4 FY2026 ending June, management guided revenue of $3.45 billion at the midpoint, implying YoY growth of 41.2% and QoQ growth of 10.9%, beating analyst estimates by a wide 9.5% margin. Post-earnings, forward consensus estimates were revised meaningfully higher, with Q4 FY2026 estimates moving to $3.45 billion from $3.15 billion prior to earnings and for Q1 FY2027 to $3.57 billion, up 35.8% YoY. Full-year FY2026 revenue now stands at $12.01 billion, implying 32.1% YoY growth, up from 27.1% pre-report.
Data Center Revenue Up 55% YoY, HAMR Ramp Gains Momentum
Data Center revenue was the standout driver, coming in at $2.50 billion in Q3 FY2026, up 55% YoY and 12% QoQ — accelerating sharply from 28% YoY growth in FQ2. This segment represents approximately 80% of total revenue and continues to benefit from sustained hyperscaler capital expenditure, increasing data generation, and AI-driven storage demand.
Data center shipments reached 175 exabytes in FQ3, up 47% YoY and 6% QoQ, continuing an uninterrupted ramp that has seen volumes rise from 120 exabytes in the same period last year. The ongoing qualification and ramp of Seagate's HAMR tech at major hyperscalers is emerging as a structural tailwind, enabling higher areal density and better economics per TB for cloud customers.
Edge IoT revenue was $612 million in FQ3, up 12% YoY and 2% QoQ. While this segment remains a smaller contributor, it has witnessed a sequential growth compared to a seasonal decline in the same March quarter last year.
Margins Continue Structural Expansion
Seagate's margin profile continued its sharp multi-quarter expansion in Q3 FY2026, reflecting tight HDD supply-demand dynamics, favorable pricing, a richer product mix driven by HAMR, and meaningful operating leverage. Seagate noted that FQ3 saw records for both adjusted gross and operating margin.
Gross margin reached 46.5% on a GAAP basis in Q3 FY2026, expanding 11.3 points YoY and 4.9 points QoQ. For comparison, GAAP gross margin was only 23.4% in FY2024 ending June, underscoring the magnitude of the structural turnaround.
Seagate also reported a 70% incremental gross margin in the quarter, above the 50% level management discussed at Analyst Day last May. Analysts questioned if this was driven by pricing or mix shift to HAMR, and if the 70% incremental margin is the right framework through FY27. CFO Gianluca Romano confirmed that pricing was a bit better and the mix shift to HAMR was a bit faster, but he does not “see a reason why we should not do the same in the future.”
Operating margin improved 12.1 percentage points YoY to 32.1% primarily driven by operating leverage. Adjusted operating margin improved by 14 percentage points YoY to 37.5% and was better slightly better than the management guidance of mid-thirties percent range. Management guided Q4 FY2026 adjusted operating margin to be in the low-40% range, which would represent yet another step-change expansion.
Net income grew by 120% YoY to $748 million or 24% of revenue compared to 15.7% in the same period last year. Adjusted net income grew by 129.5% YoY to $934 million with an adjusted net margin of 30% compared to 18.8% in the same period last year.
Adj. EBITDA was $1.23 billion in FQ3 at a 39.6% margin, up from $563 million or 26.1% of revenue in the same period last year.
Adjusted EPS grew by 116%
FQ3 adjusted EPS grew by 115.8% YoY to $4.1 primarily driven by operating leverage, beating estimates by 16.6%. GAAP EPS grew by 108.3% YoY to $3.27 and was in-line with estimates.
For Q4 FY2026, management guided adjusted EPS of $5.00 +/- $0.20, implying YoY growth of 93.1% and beating estimates by 25.9%. Post-earnings, full-year FY2026 adjusted EPS consensus has been revised to $14.90, up 84% YoY, compared to pre-report estimates of $13.17. FY2027 and FY2028 forward estimates have similarly moved higher, to $24.35, up 63.4% YoY and $34.76, up 42.7%, respectively.
Cash Flow and Balance Sheet
Cash flows improved in FQ3 driven by higher profits.
FQ3 operating cash flow was $1.11 billion or 35.8% of revenue compared to $259 million or 12% of revenue in the same period last year.
FQ3 free cash flow was $953 million or 30.6% margin compared to $216 million or 10% of revenue, representing a more than 4x YoY increase in free cash flows. On a trailing basis, Seagate has now generated $1.99 billion in FCF over the past three quarters alone (Q1–Q3 FY2026), compared to $818 million for all of FY2025.
On the balance sheet, cash was $1.15 billion. Debt has been reduced aggressively from $5.7 billion in Q2 FY2025 to $3.9 billion in Q3 FY2026, a reduction of $1.8 billion in five quarters. In the recent quarter the company reduced $641 million of debt.
The consistent adjusted EBITDA expansion and reduction of debt is also driving the company's net leverage ratio lower at a rapid pace — from 2.5x in Q2 FY2025 to just 0.7x in Q3 FY2026.
Conclusion
While HDD pricing continues to lag high-flying NAND and enterprise SSD prices despite tight supply and strong demand dynamics, there was more evidence arising this quarter that HDD pricing is getting more constructive and can remain stronger through the end of the year. Seagate and analysts noted that prices were up roughly mid-single digits both YoY and QoQ, with the upcoming ‘aggressive’ Mozaic4+ ramp likely aiding pricing through year-end as it ramps.
Fundamentally, Seagate’s FQ3 was solid across the board, with Data Center revenue seeing a meaningful 27 point acceleration to 55% YoY while QoQ growth rebounded to 12%. Seagate noted that adjusted gross and operating margins both reached records while guiding for more expansion in Q4, and cash flows were robust with free cash flow up more than 4X YoY to surpass a 30% margin.
Seagate also raised its longer-term annual growth forecast from the low to mid-teens to >20% over the next few years, despite unit growth remaining flat. This is supported by strong demand from hyperscalers supported by HDD’s value proposition of cost and energy efficiency at scale, including for upcoming drivers such as inference, agentic AI and physical AI.
Royston Roche and Damien Robbins, Equity Analysts at I/O Fund contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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